Mixed Performance May Linger, As Investors Position For Correction, Santa Claus Rally

Market Update for December 10

The Nigerian Stock Exchange (NSE), on Tuesday, extended its losing streak for the seventh consecutive session, pulling the NSE’s benchmark All-Share index further southward, while almost wiping away all the gains recorded in the month of November, even as it touched a new one month low. The heightened selloffs among highly capitalized stocks, it has become clear, is beyond profit-taking, with market players adopting the wait-and-see attitude reflected in the low volume traded in the recent time.

There are evident indecision and skepticism among traders, following the recent downgrade of some Nigerian banks and Dangote Cement by Moody’s; despite maintaining its rating at B2 there was a change in outlook from stable to negative. The downgrade was predicated on the government declining revenue outlook for funding of its 2020 budget, which has become increasingly opaque while noting the nation’s vulnerability to an adverse change in capital flows in the light of the country’s increasing reliance on foreign investors to fund its foreign exchange reserves.

Nevertheless, the unconventional policies of the Central Bank of Nigeria (CBN) have started stimulating the economy and waiting for the fiscal authorities to up their game in the area of security, infrastructural development, and respect for the nation’s laws.

Also, the possibility of the annual Santa Claus rally before and after the Christmas is high following from this market correction, given that huge funds inflow are expected to the market, after maturity of the OMO bills and other fixed-income investment this month of December. Also, the banks are expected to implement the 65% Loan-to-Deposit Ratio at the end of the year, even as CBN plans to increase it to 70% by next year.

Investdata Research calls for a smart play on the on-going bearish moves for timely profit as the next recovery kicks off.

Meanwhile, Tuesday’s trading opened slightly on the upside, before pulling back between the mid-morning and afternoon on the back of selloffs and profit-taking, dragging the NSE index to an intraday low of 26,364.21bps basis points, from its high of 26,716.38bps. It thereafter inched up slightly to close at 26,383.26 bps on a low traded volume.

Market technicals for the session were negative and mixed as traded volume was mildly higher than the previous session, amidst the negative breadth and high selling pressure as revealed by Investdata’s sentiment report of a 0% ‘buy’ volume and 100% sell position. The day’s total transaction volume index stood at 0.65, as the energy behind the day performance was weak as Money Flow Index reads 45.16 points, up from the previous 52.90bps. This is an indication that funds exited the market general and some stocks.

Index and Market Caps

The composite NSE index, at the end of trading, lost 297.10bps, closing at 26,384.21bps from the 26,681.31bps it opened, representing 1.11% decline, just as market capitalization fell by N143.39bn to close at N12.73tr, from an opening value of N12.88tr, which also represented a 1.11% value loss in investors’ portfolios.

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Tuesday’s decline was impacted by selloffs and lingering profit-taking in heavyweight stocks like Dangote Cement, Nestle, MTNN, and Guaranty Trust Bank, as well as FBNH, Fidson, Wema Bank and Honeywell, which impacted negatively on the NSE’s Year-to-Date loss. This increased to 16.06%, just as market capitalization YTD gain dropped to N1.01tr, representing an 8.65% growth from the year’s opening value of N11.72tr.

Bearish Sector Indices

All sectoral performance indexes were down, except for the NSE Oil/Gas that was flat, while the NSE Consumer goods led the decliners, losing 1.99%, followed by the Banking Index’s 0.92%; while the NSE Industrial Goods and Insurance indexes shed 0.56% and 0.34% respectively.

Market breadth was negative as decliners outpaced advancers in the ratio of 23:8, while market activities were mixed as volume traded was marginally up by 1.89% to 196.29m shares from the previous day 192.68m units, just as the value was flat at N3.55bn, just as Tuesday.

Royal Exchange Assurance and FCMB were the best-performing stocks for the day as they topped the advancers table, chalking 7.41% and 3.95% respectively to close at N0.29 and N1.84 respectively, on the back of market forces. On the flip side, Daar Communication, and Arbico lost 10% and 9.95% respectively, closing at N0.36 and N3.89 on selloffs.

Market Outlook

We expect the mixed performance to continue as investors take advantage of the correctional profit-taking and low supply to position, ahead of the usual Santa Claus and year-end rally as capital flow and repositioning in value stocks continue. There is also the changing sentiment in the expectation of improved liquidity and positive economic indices. At the maturity of OMO investment, more funds will be available given the Central Bank of Nigeria’s restriction of the OMO market to foreign investors and domestic banks.

Again, the current undervalued state of the market offers investors opportunities to position for short and medium-to-long-term horizons. We expect that investors would target fundamentally sound and dividend-paying stocks for possible capital appreciation as the year draws down to usher in 2020, just as was noted in the 10 golden stocks and trading ideas for 2020 discussed last weekend during the Investdata  2020 Traders & Investors Summit.

Also, traders and investors need to change their strategies owing to NSE’s pricing methodology, CBN directives and its impact on the economy in the nearest future.

Meanwhile, we appreciate all that made Invest 2020 Traders and Investors Summit a success. The home study pack will be available next week. To book for the pack, Send Yes or Stock to 08028164085, 08032055467, 08111811223 now.

Ambrose Omordion

CRO|Investdata Consulting Ltd





Tel: 08028164085, 08032055467