NGSE Index Record Strong Gains On Low Volume, As Liquidity Constraints Persist

Market Update for September 12
The inverse to the bearish sentiment on the Nigerian Stock Exchange (NSE) continued on Thursday as the composite All-Share index recorded the first back-to-back gain on a very volatile outlook and low traded volume, which reflected a slowdown in selloffs. This is coming against the backdrop of the seeming political risk that may have been seemingly diffused ahead of hints by Nigeria’s main opposition Peoples Democratic Party (PDP) that it will take its challenge of the outcome of last February’s Presidential election challenging the victory of President Muhammadu Buhari and his All Progressives Congress Supreme (APC), before the Supreme Court.
The bullish sentiment resulted in the upsurge, a sign of active bargain hunting that however needs improved transaction volume to confirm direction.
There was also the widening market breadth that saw more stocks appreciating in value as traders took advantage of the prevailing low stock valuations to position, particularly in the banking and industrial goods sectors. This is however not unconnected with the improvement in the half-year earnings reports presented recently by the banks and the building material making companies.
Judging by the recent development, it is clear that the market is setting the stage for another bear rally on a bearish trend. However, a breakout of the 27,565.10 basis points level will confirm this move. It will nonetheless be until the benchmark index takes out the August high of 27,849.30bps to kick start recovery, depending on market sentiments and economic fundamentals which are expected to shape investment behaviour.
These are however interesting times in the global arena as central banks return to the era of Quantitative Easing (QE) as a stimulus programme for the world economy. We now officially have the Feds pointing south on monetary policy and the European Central Bank and Bank of Japan (BOJ) pumping liquidity into the global economy. To be clear, this is all about managing the downside risk of an indefinite trade war!
With this in mind, we continue to talk about the reality that Trump is in the position of strength in the negotiations with China, and therefore, he can make any concessions necessary to get ‘a’ deal done, claim victory, and remove the overhang of uncertainty on the global economy. Also, by his design, he has monetary policy tailwinds, which will only add fuel to the fire, following a China deal, of what would become a booming economy into next year’s election which Trump seeks a second term opportunity.
Back home, Thursday’s trading started out with a gap to the upside and oscillated on a high buying pressure between the mid-morning and afternoon, when it touched intraday high of 27,439.54bps, from a low of 27,142.88bps, before finishing the day higher at 27,426.64bps on positive sentiments.
The day market technicals were positive and mixed, as volume traded was lower than previous day’s, amidst a positive market breadth and high buying pressure, as revealed by Investdata’s Daily Sentiment Report, showing ‘buy’ volume of 96%, while ‘sell’ position stood at 4% on total daily transaction volume index of 0.53.
The momentum behind the day’s performance was weak, as Money Flow Index dropped further to 20.35 points, from the previous session’s 26.39bps despite the increased buying interests. This divergence indicated that new funds are yet to start entering the market as reflected in the day’s traded value. The current stock prices and the earnings powers of companies as revealed by their half-year Price/Earnings ratios and the general market show that there are high upside potentials if the economy improves. As market PE ratio stands at 6.96x.

Index and Market Cap
At the end of Thursday trading, NSE All-Share index gained 273.11bps closing at 27,426.64bps after opening at 27,153.53bps, representing a 1.01% growth, similarly, market capitalization went up by N141.27bn to close at N13.35tr from an opening value of N13.21tr which also represented 1.07% appreciation in value.
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The session advanced on bargain hunting in stocks like Nestle, Guaranty Trust Bank, Zenith Bank, Lafarge Africa, UBA, FBNH, CCNN, Dangote Sugar, Access Bank, UACN, Uacn Property, Caverton, Transcorp, Aiico and Forte Oil among others. This impacted positively on the NSE’s Year-to-Date loss, dropping to 12.74%, even as YTD market capitalization gain stood at N1.63 trillion or 13.91%, from the year’s opening level of N11.72tr.

Bullish Sector Indices
All the sectoral performance indexes were bullish, as the consumer goods index led the advancers, after gaining a strong 3.78%, followed by banking index with 1.70%; just as industrial goods, insurance, and Oil/gas were next with 1.13%, 0.56% and 0.49% respectively.
Market breadth remained positive as advancers outpaced decliners in the ratio of 22:7; while market transactions in volume and value were down by 45.43% and 41.08%, respectively at 115.42m shares worth N854.29m, from the previous day’s 211.52m units valued at N1.45bn. This volume was driven by heavy trades in stocks like Access Bank, Transcorp, UBN, FBNH, and Guaranty Trust Bank.
The best-performing stocks for the session were Aiico and Forte Oil, which topped the gainers’ chart with 9.84% and 9.64% respectively to close at N0.69 and N15.35 per share on market forces as it plans to raise funds; and low price attraction. On the flip side, Jaiz Bank and NPF Microfinance lost 5% and 4.31% respectively, closing at N0.38 and N1.11 on market forces and profit-taking. The market will wait to confirm whether Thursday’s loss by NPF MFB is a reaction to its plans to raise fresh N3.429bn by issuing 2.286bn ordinary shares of 50 kobo each at N1.50 per share.

Market Outlook
We expect a mixed performance as profit-taking from this short rally is expected while bargain hunters take advantage of low prices of equity to position, now that index had reversed up, discerning investors should catch on it to average down and recoup their investment immediately a recovery stage is set through economic policies and things start to changing gradually to influence equity prices positively, while investors watch these Sectors that have become defensive recently insurance, banking, industrial goods, services, and oil/gas that will go bullish in no distance time.

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CRO|Investdata Consulting Ltd
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