NGSE Index Attempts Reversal On Mixed Sentiments, Low Price Attractions, Despite weak Earnings

Market Update for The Week ended November 8 and Outlook for Nov 12-15
The Nigerian Stock Market appreciated over the past week despite the mixed performance witnessed within the period, halting what would have been the seventh consecutive week of decline. The composite NSE All-Share index reversed its losing streak, closing marginally higher on mixed sentiments and huge traded volume that reflected portfolio adjustments ahead of the release of key economic data like October inflation, Q3 GDP and the year-end rally.
Post-earnings reporting season trading patterns and price movements reveal value investing as investors cash in on low prices but notable earnings performance to rebalance their portfolios along the impressive and surprising numbers. Such stocks are expected to support price appreciation and dividend payout as the year draws to a close. The evidence of low confidence and liquidity is still obvious in the market despite the increasing buying interests particularly on Monday and Friday in the midst of selloffs among the high cap stocks.
The rising prospects of a trade deal between the U.S and China to support positive sentiments in the past two weeks has helped global stock markets to close higher, given that tell-tale signs of the prolonged trade dispute. This has reflected on the recent economic data from the world’s biggest economies in the forms of the dismal Q3’19 1.94% GDP growth performance for the U.S., and China, 6%. We expect both countries to continue shifting grounds in the ongoing trade negotiations until fairness is achieved on both sides. As a result, we expect global market volatility to wane in the near term, as more positive developments emanate from the U.S. and China trade talks. With the debate over whether or not a deal will come with a rollback of tariffs, it seems clear that an agreement on currency can or will only come if tariffs are rolled back.

Movement Of NSEASI
Back home, buying interest was rekindle among Investors on Monday, following the official close of the earnings season, halting seven straight weeks of decline, with the All-Share Index starting the week on a positive note with its 0.41% gain. This trend reversed on Tuesday and at the midweek and then Thursday, shedding 0.10%, 0.58%, and 0.14% respectively, following sell down in some high cap and blue chip stocks. However, the bulls resurfaced on Friday, when the NSE’s benchmark index gained 0.48%, on banking stock price appreciation. This left the week’s total gain at 0.08%. The All-Share index closed for the week at 26,314.49 basis points from 26,293.30bps, after testing the intra=week low of 26,143.12bps.
The week’s advancers table was dominated by a mixture of category of stocks as market players repositioned their portfolios, just as there was weak price movement, following the unimpressive earnings of the top decliners as investors sold down. Market breadth for the week closed slightly positive with gainers outnumbering losers in the ratio of 30:28.
The momentum behind the week’s performance remained weak, despite moving up as shown in the 41.67bps Money Flow Index, compared with 31.35bps in the previous week, indicating that funds had entered the market and some stocks.
The trading pattern during the period shows that discerning traders and investors are taking advantage of the new low prices of fundamentally sound stocks to position ahead of seasonal movement and end-of-year window dressing by fund managers. Also, the Investdata sentiment report for the week revealed mixed sentiment with ‘buy’ volume at 56%, while the ‘sell’ position was 44% on a transaction volume index of 1.15.

NSEASI Weekly Time Frame
The chart above shows that the NSE index is gradual attempting reversal on a mixed sentiment and low liquidity, irrespective of the seemingly weak earnings, which look relatively good considering the low prices of equity on the exchange. The improving buying interest as revealed by Investdata sentiment reports and candlestick formation indicates a possible reversal in no distance time.
MACD is turning bullish on a daily and weekly time frame. At this point, it is the interplay of market forces that will determine the next direction, especially as actual earnings position of the companies are influencing traders and investors’ decision. Bargain hunting gathered momentum during the week and expected to continue in the new week after Monday public holiday.
Index action continues to trade below the 20-Day Moving Average on a daily and weekly timeframe; the composite index has resisted decline, as the major support level of 26,143.12bps in a bearish channel. The Relative Strength Index reads 31.33 at the oversold region. However, money flow is reading 41.67 points on the weekly chart.

Bullish Sectoral Indices
The sectorial performance indexes close largely bullish, except for NSE Consumer Goods and Oil/Gas index that closed lower by 5.91% and 0.23% respectively, while the NSE Banking index led the advancers after gaining 8.51%, followed by the NSE Industrial goods and Insurance, which was up 2.03% and 0.43%;
Market activity in terms of volume and value for the week were up by 49% and 21% respectively to 2.06bn shares worth N18.43bn, as against the previous week’s 1.51bn units valued at N16.19bn. The week’s volume was boosted by transactions in Jaiz Bank, Access Bank, and Zenith Bank.
The best-performing stocks during the week were Law Union Insurance and Jaiz Bank, which topped the advancers’ table with 30.95% and 18.37% gains respectively, closing at N0.55 and N0.58 per share on industry recapitalization and market forces. On the flip side, Unilever Nigeria and International Brewery lost 26.59% and 25.40% respectively, closing at N19.60 and N9.40, on weak and negative Q3 earnings position.

Market Outlook
The mixed trend is expected to continue in the new week, given the improved buying interest as revealed by the sentiment report for the week, given that the earnings position of various companies and expected economic data may trigger speculative trading, buoyed by the low prices of fundamentally sound stocks and ahead of year-end. At the moment, all eyes are on the domestic economy as macroeconomic indicators look seemingly positive ahead of policy statements and economic reforms. In the meantime, funds are flowing towards fixed income instruments.
Discerning investors, nonetheless, should take advantage of the current low stocks valuation to position for medium to long term. It is noteworthy that the market is selling at a discount to give high upside potential.
We would, however, not overlook the possibility of a bargain-hunting motive supporting positive performance, especially with many fundamentally sound stocks remaining underpriced. With a dividend yield of major blue-chips continuing to look attractive in recent weeks, we expect speculative trading to shape the market’s direction, despite the seeming negative outlook.

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