Mixed Performance Ahead, As Loss Momentum Drops, NGSE Equity Investors Reshuffle Portfolios

Market Update for Week Ended May 25 and Outlook for May 28-June 1

The correction that has lingered over the past four months on the Nigerian Stock Exchange (NSE) became even more troubling for the investing community last week as the tempo of decline increased. The NSE’s benchmark All-Share index suffered the fourth consecutive weekly pullback, bringing its total loss to 83.78% of all it garnered in January when returns peaked at 17.45%, ranking it the third best performing market in the world.
The blend of down, up and sideways movement was due to profit booking and cautious trading that dominated the period under review, amidst high selling pressure and low buying volume, especially as the Nigerian market traded below its 20-Day Moving Average for seven successive weeks.
Investdata research recently drew attention to a worrying trend in the US interest rate market with 10-year having yields around 3.1% which continues to threaten emerging markets. It is clear funds are leaving markets like Nigeria, thinking that 3% yields will quickly turn into 4%, but it closed the week at 2.9%.

NSE Weekly Time Frame
Looking at the chart above, the market has broken down the uptrend line in the process of this correction cycle. The longer-term trend is still up despite this bearish trend that started in February. Coincidentally, at the time, oil price was rising to make three-year new high, as central banks balanced their monetary policies to support global economic growth.
We have had 30-40% correction in equity prices so far, but the NSE index is still holding above its 50 and 100-day moving average, with a longer-term trend still, despite breaking down the uptrend line as a result pull-backs. Low and medium cap stocks have already suffered huge losses as they are making lower lows. And we have an economy that is recovering, with corporate earnings expected to go stronger this year. So, the second half of the year should be very good for company earnings that will drive stock prices intermittently until after the 2019 elections when the market will experience bull ascendance on the strength of healthier companies earning power that supports prices and dividend payout.
On the plus side, are the impressive high payouts recorded during the 2017 full year earnings reporting season and Q1 earnings reports that beat market expectation. Investdata research believes that more than half of companies listed on the Nigerian bourse recorded positive revenue and earnings in the last quarter, in addition to positive economic data that however failed to impact the market before the recent 2018 Q1 GDP that came in slower than expected, confirming earlier warnings that Nigeria’s economic recovery remains fragile. This is despite improvements in oil price within the period which had stopped influencing equity performance, while boosting government revenue as reflected in the external reserve which continues to give confidence and attract inflows of funds into the domestic economy.

Equity Indicators Last Week
Meanwhile, Nigeria’s composite NSEASI, last week, shed a whopping 1,148.83 basis points, closing at 39,323.62 basis points, from 40,472.45bps, representing a 2.84% decline on a relatively lower volume of transactions, when compared to the previous week’s. The volume index of total transactions for the week was 0.55, with selling pressure at 91% and buying volume, 9%, while trading below its shortest moving average over the last seven weeks, besides slipping below the 40,000 psychological line. Similarly, market capitalisation for the period closed lower at N14.24tr, from an opening value of N14.66tr, representing a 2.84% value loss due to massive sell-offs in low and medium cap stocks.
At the end of the week, low cap stocks dominated the advancers table as smart money continued to exit positions for another investment window with low risk, while investors are watching with keen interest to identify support level for accumulation ahead of half year earnings season and interim dividend paying stocks.
The free fall of equity prices for the period impacted negatively on the NSEASI’s year-to-date returns, as it dropped significantly to 2.83%, just as growth in market captalistion dropped N489.34bn, representing 4.68 % rise from the year’s opening value.

Negative Market Breadth
Market breadth for the week remained negative as decliners outnumbered advancers in the ratio of 61:14 on lower volume of trades and high selling pressure as market players exited to cut losses, as the market awaits external stimulus or news to change the face of the market. The week’s trading started on a negative note to continue the previous Friday’s loss position, shedding 0.12%, which lingered till last weekend when it followed with daily losses of 0.43%, 0.14%, 1.06% and 1.01% respectively, bringing cumulative slide for the week to 2.84% on panick selling.
It was a bearish performance across sectors for the period as all indexes were in the red, as a result of profit taking in Dangote Cement, Zenith Bank, Guaranty Trust Bank, Flourmills, UBA, Aiico, Eterna, NEM, 11 plc, Dangote Sugar, Dangote Flour and Fidelity Bank that dragged the market lower.
Market transaction for the week in volume and value were down by 6.16% and 32.32% as 1.37bn shares changed hands for N16.02bn, compared to previous week’s 1.46bn units valued at N23.67bn.
The best performing stocks for the week were Ikeja Hotel and MRS Oil Nigeria that topped the advancers table with 44.94% and 21.18% gains respectively, closing at N2.58 and N0.33 per share, as a result of market sentiments. The worst performing were Eterna and Japual Oil that lost 22.27% and 20% to close at N5.27 and N0.24 respectively on price adjustment for dividend and market forces.
This week, the share prices of 11 Plc and Cap are billed to be adjusted for dividend payout;

Market Outlook
We expect the losing momentum to subside which will drive mixed performance this week as players navigate to reshuffle their portfolios and exit positions that are on the losing side. At the same time, let the upbeat economic data and company numbers guide your investment decisions. Also, we expect the impact of the rising oil price to boost the fiscal spending and support economic fundamentals.
Meanwhile, dividend income players are taking position ahead of more economic data, even amidst the expected sustained volatility and repositioning.
However, we would like to reiterate that investors should not panic but go for equities with intrinsic value, especially as interim dividend payment is approaching.
We advise investors to allow numbers guide their decisions while repositioning for the rest of the year’s trading activities, especially now that stock prices remain volatile amidst improving company, economic and market fundamentals.
It is time to combine fundamentals and technical tools to take decision by knowing the support and resistant level to reposition or exit any position. A stock market is in cycles. You must know the cycle it, or particular stocks therein are to successfully manage your trading and investment risk. For stocks that should be on your shopping list to buy in these seasonal changes as the year unfolds, sign up to INVESTDATA BUY AND SELL signal setup by calling 08032055467.
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Ambrose Omordion
CRO|Investdata Consulting Ltd
Tel: 08028164085, 08032055467