NGSE Index Attains New Low, As Govt Delays Reconstitution Of New Cabinet

Market Update for August 6
It was a negative turnaround and volatile Tuesday, as selling pressure resurfaced on the Nigerian Stock Exchange (NSE) in the midst of portfolio rebalancing and interpretation of the just concluded earnings season. As we have noted previously, many of the recently presented quarterly financial reports came below market expectation, in what is seemingly worse than those corporate performance presented during the 2016 recession. These results are definite confirmation of the fact that all is not well with, and that the Nigerian economy needs to be urgently fixed. However, at this time the economy is in dire need of a fiscal stimulus, it is likely Nigerians may need to wait a little longer for the job of governance to commence, amidst reports that the minister-designates will be sworn-in after the Eid celebrations next week. That presupposes that discussions real governance may not happen until towards this month-end or thereafter.
We had expected the government to address issues of the economy if only to redirect the current trend of performance at this time, with the mixed macroeconomic indices emanating from the National Bureau of Statistics (NBS) and the Central Bank of Nigeria (CBN).
There is a need for government to review the performance of its policies as they affect the economy, and whether or they in any way a disincentive to investment among Nigerians.
We are however not unaware of current efforts to expand the country’s tax net through innovations by government, thereby raising Nigeria’s tax-GDP ratio, while sourcing revenue to fund the annual budget. However, in ding so, there are reports from across the country of multiple taxes, which the three tiers of governments must avoid, so as not to dampen economic activities. There could be a redefinition of what taxes should exist and who collects what, for example, to avoid confusion.
Meanwhile, the prolonged low liquidity in the Nigerian stock market and decline in money supply or in circulation is reflecting on the corporate earnings and consumption strength of Nigerians in the form of low purchasing power. This, more than anything else has given insight into what the expected Q2 GDP will look like.
Meanwhile, the All-Share Index opened Tuesday’s trading on the downside, as negative sentiments and selloffs dampened the demand for stocks. This situation lasted until midday before the market oscillated in the early afternoon and thereafter retraced up slightly in the last minutes. The rebound was not, however, strong enough to close the session higher, as trading ended with the NSE All-Share index at 27,527.40 basis points, not too far from its intraday low of 27,521.46bps, compared the day’s high of 27,706.47bps
Tuesday’s market technicals were negative as volume traded was lower than the previous day’s, in the midst of negative breadth and sentiment as revealed by Investdata’s Daily Sentiment Report, with ‘sell’ volume at 97% and buy position is 3% of total daily transaction volume index of 0.81.
The momentum behind the day’s performance remained weak, despite inching up, as Money Flow Index read 21.31 points, higher than previous day’s 20.72bps, indicating that funds entered some stocks irrespective of the resumed selloff among the high cap stocks.

Index and Market Cap
The benchmark NSEASI closed 141.98bps down to close at 27,527.40bps, after opening at 27,669.38bps, representing a 0.51% drop, just as market capitalization lost N69.19bn to close at N13.41tr, from N13.48tr, which also represented 0.51% depreciation in value.
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The day’s decline was driven by selloffs in stocks like Dangote Cement, MTN Nigeria, GTBank, Zenith Bank, UBA, Cadbury, Dangote Flour, FBN Holdings, Oando, Forte Oil, Wema Bank, Honeywell, and Transcorp. This impacted negatively on the NSE’s Year-to-Date loss, increasing it to 12.42%, just as YTD market capitalization gain inched to N1.58tr or 14.45% from the year’s opening level of N11.72tr.

Bearish Sector Indices
The sectoral performance indexes were largely in the red, except for the NSE Industrial goods that closed marginally up by 0.01%, while the Insurance index led the decliners’ after losing 2.77%, followed by oil/gas index with 1.13%, as well as banking and consumer goods, which dropped by 0.72% and 0.12%respectively.
Market breadth turned negative as decliners outnumbered advancers in the ratio of 23:6; market activities were mixed as traded volume fell 39.18% to 170.72m shares from the previous 280.7m units. Transaction value, however, rose as by 60.4% to N2.26bn from Monday position of N1.38bn. The day’s volume was driven by trading in stocks such as Access Bank, Guaranty Trust Bank, Dangote Flour, Zenith Bank and UBA.
The best-performing stocks for the day were May&Baker and United Capital that topped the advancers chart after gaining 4.35% and 3.88% respectively, closing at N2.40 and N2.14 per share, on market forces. On the flip side, Beta Glas and Continental Reinsurance lost 9.95% and 9.88% respectively to close at N59.75 and N1.55 on profit-taking and selloffs.

Market Outlook
We expect the mixed performance to continue as market players digest the earnings reports released and reshuffle their portfolios in expectation of interim dividend-paying earnings reports. Also, we see bargain hunters faking advantage of new year-low stocks, as economic indices seemingly look positive. Discerning investors should target value stocks considering the current low valuation to position for dividend income and capital gain, especially as the market’s Price to Earnings ratio is 6.12x, which is well below the 9.85x average of its peers and a five-year average of 11.x. This revealed value and high upside potentials for a rally. But wait to confirm reversal before jumping into a new position.
They may also take into consideration the expected economic reforms as the government is set to assign portfolio to the screened minsters, just as Central Bank of Nigeria (CBN) had earlier rollout it plans to boost productivity and investment by instructing the banks to lend more to the private sector. This is aimed at reducing banks’ participation in government securities and lending more to the private sector to drive economic growth.
There is also the likely impact of portfolio repositioning for the last quarter of the year ahead of Q3 financials in the midst of analyzing Q2 numbers and unfolding political events.

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Ambrose Omordion
CRO|Investdata Consulting Ltd
Tel: 08028164085, 08032055467