NGSE Index Hits New Lows, Investors Position In Sound Stocks, As 2019Q3 Season Peaks

Market Update for The Week ended October 18 and Outlook for 20-25
Again, the bears extended their stranglehold on the Nigerian Stock Exchange (NSE) to its fifth consecutive weeks of decline, with the All Share Index recording daily losses throughout the trading period. This is not unexpected, given the rising risks arising from a seeming mismatch of monetary and fiscal policies that mainly heightened the September inflation rate to 11.24%, from the 11.02% recorded in August.
The continued decline of the NSE’s benchmark index was despite the recent artificial market created in the form of the new pricing methodology which moderated its movement with the prices of many highly-priced stocks becoming inactive state due to low liquidity.
News of a stress -test which revealed that seven banks of the nation’s 24 banks are not adequately funded as revealed by the 2018 Financial Stability Report (FSR) of the Central Bank of Nigeria (CBN) and reported by different newspapers. This has also further dampened investor sentiments.
According to the report, despite the outcome of the stress-test, Nigeria’s financial sector remains resilient and stable enough to absorb any external shocks and to support the real sector to drive economic activities necessary to stimulate national growth and development. The report indicated that there was an improvement in the composite risk rating of the Nigerian banking industry and shown in its Capital Adequacy Ratio, which increased to 15.2%, from 12.1% in first half of 2018, reflecting an improvement in the capital cover of banks’ exposures. At the same time, Return On Assets, Return On Equity and Interest Margin recorded growth, signifying profitability in the industry.
Nonetheless, the rise in inflation as reported by the National Bureau of Statistics (NBS) has further dampened the probability of the CBN achieving it a single-digit target, just as it could be a warning that the Federal Government’s 10.81% projection in its 2020 budget is unrealistic. The increased growth in September’s inflation rate was blamed on a cocktail of actions such as the border closure, hike in Value Added Tax (VAT) rate from 5% to 7.5%; and expected implementation of the new minimum wages for which labour and the government, last week, reached an agreement.
Heading into the festive season known for increased household consumption activities, we expect the inflation rate to continue to trend upwards, given the fact that the Federal Government and the CBN have shown no sign of readiness to reverse their policy positions on the current drivers of inflation in the country.
On the global scene during the week under review, the markets recorded improved performance with new developments about the Brexit, at a time the trade tension between the U.S and China is subsiding due to the agreement that led to suspension of the tariff hike on $250bn worth of Chinese goods which was to take effect last week. To reciprocate, China also had agreed to purchase U.S agricultural produce worth up to $50bn. This is likely to shape sentiments in developed markets and economies in this new week.

Movement Of NSEASI
Meanwhile, back home, despite the bearish nature of the market during the week, the composite NSE All-Share Index opened trading on a positive note, a situation that was short-lived in the subsequent sessions as selling pressure dominated the rest of week. The NSE index shed 0.19%, 0.16%, 0.06% and 0.03% respectively on Tuesday, Wednesday, Thursday and Friday. This brought the week’s total loss to 0.32%, following which the index closed at 26,448.62 basis points, from 26, 533.78bps it opened, compared with the 1.68% loss recorded in the previous week.
Also, the benchmark index for the period made new lower lows, after testing 26,374.84bps that is the new support level, despite the NSE’s new pricing methodology which is seemingly moderating the market’s free-fall amidst selloffs in high cap stocks have affected the index largely. This situation was evident on the advancers’ table as it was dominated by low cap stocks, as highly capitalized remain unchanged, while some blue-chip companies continue to witnessed selloffs, despite the earnings season which kicked off with the presentation of the nine-month score-card by Guaranty Trust Bank and United Capital to the market. Market breadth for the week closed negative with decliners outnumbering advancers in the ratio of 23:19.
The energy behind the week’s performance remained weak, despite inching up as shown in the 32.54bp Money Flow Index, compared with 32.14bps in the previous week, indicating that some stocks had inflows, despite the weak market and selloffs. The week’s trend is an indication that discerning traders and investors are taking advantage of the new low prices of fundamentally sound stocks to the position in expectation of company earnings reports. Also, the Investdata sentiment report for the week revealed mixed sentiment with ‘sell’ volume at 68%, while the ‘buy’ position was 32% on a transaction volume index of 0.63.
During the week, many companies announced their closed period and date of board meetings, preparatory to publishing their quarterly financials, while, the share price of Cutix and PZ Cussons were adjusted for dividend of 0.125k and 15kobo respectively.

NSEASI Weekly Time Frame
The chart above shows that the NSE index made a new lower low on negative sentiment and low liquidity, thereby making reversal dicey ahead of fundamental news of earnings reports, suggesting that, this downtrend may likely continue, looking at the chart formation pattern. MACD is bearish on a daily and weekly time frame. At this point, it is the interplay of market forces that will determine direction, especially as more financials hit the market in this new week. We expect bargain hunting to gather momentum during the week, as the Q3 earnings reporting season peaks.
Though the NSEASI is still trading below the 20-Day Moving Average on a daily and weekly time frame, the index action has broken down the major support level of 26,489.42bps in a bearish channel, just as the Relative Strength Index reads 31.90. However, money flow is reading 32.54 points on the weekly chart.
Mixed Sectoral Indices
The sectorial performance indexes were mixed and largely bearish, as the NSE Insurance and Consumer Goods index closed 2.4% and 0.10% higher respectively, while the NSE Banking led the decliners after losing 2.0%, followed by Industrial Goods sector, which shed 0.3%, while Oil/Gas slipped by 0.2%.
Market activity for the week in volume and value were down by 36.17% and 48.19% respectively, as investors traded 896.61m shares worth N16.56bn, compared to previous week’s 1.41bn units valued at N31.96bn. This volume was mainly driven by Guaranty Trust Bank, Global Spectrum Energy Services and Flour Mills.
The best-performing stocks for the week were Consolidated Hallmark Insurance and Fidson Healthcare, which topped the advancers’ table with 17.86% and 11.11% gains respectively, closing at N0.33 and N4.00 per share on industry recapitalization and market forces. On the flip side, Cornerstone Insurance and Cutix lost 17.95% and 12.69% respectively, closing at N0.32 and N1.31, on profit taking and markdown for dividend.

Market Outlook
The mixed performance is expected to continue in the new week, given the developments around Brexit, the US-China cease-fire which brings a major relief to the global markets, while more earnings reports hit the market to trigger speculative trading, at a time of low prices of fundamentally sound stocks. At the moment, all eyes are on the domestic macro economy expecting positive triggers in the form of policy statement and economic reforms. In the meantime, more 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 under-priced. 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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