NGSE: Juicier Opportunities Beckon, But Dwindling Market Confidence Clouds Investors’ View

Market Update for July 3
Nigeria’s stock market continued downhill ahead of the half-year earnings reporting season, amidst negative sentiments for the third consecutive day in the absence of a plan by the government to deliberately turn the economy around. The losing momentum is, however, slowing down as investors trade with some measure of caution.
The pullback was impacted by selloffs in the banking and oil/gas stocks on a low traded volume, as it becomes even more obvious that the unhealthy business environment, insecurity situation, lack of infrastructure and visionary leadership continues to influence the economy and market negatively. Recalls that Nigeria ranks 146 of 190 countries in the Ease of Doing Business, according to the most recent World Bank report.
Also important is the fact that most investors forget that stock markets have cycles, seasons and structures that help in timing returns at different periods from a risk perspective. We are not trying to generate returns based on the Beta, or the embedded risk in the market, alone. Anyone can ride the Beta wave up or down, depending on the strategy adopted. Merely looking at the reward-to-risk (R-2-R) profiles in the short or long term, you would notice that they are more than three-to-one. This means you have the opportunity to buy low and sell high. You only need to experience a Naira’s worth of drawdown to earn N3, by taking advantage of bearish price action. So far, our timing for medium and long trades is clear and better than a short position at this point.
Trading at midweek was volatile and mixed as it opened on the downside in the morning and lasted till afternoon, after touching intraday low of 29,300.70 basis points from its high of 29,458.03bps, before it finally closed the day slightly lower at 29,395.14bps.
Market technicals for the day were negative despite the fact that volume traded was higher than the previous day’s, amidst the negative market breadth and mixed sentiment as revealed by Invest data’s Daily Sentiment Report. The session ‘buy’ volume was 47% and ‘sell’ position 53% of the total daily transaction volume index of 0.56.
The energy behind the day’s performance remains seriously weak as Money Flow Index ranged along the new three-year low of 4.89points, from previous day’s 4.88bps. This shows that funds are not entering the market as revealed by the trading size looking at market data.

Index and Market Cap
At the end of trading, the All Share index lost just 19.89bps, closing at 29,375.25bps, after opening at 29.385,14bps, representing a 0.07% drop, just as market capitalization was down by N8.76bn to close at N12.95tr, from its opening value of N12.96tr, which also represented 0.07% value loss.
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Again, the downturn was driven by price depreciation in medium and highly capitalized stocks like Dangote Cement, Zenith Bank, FBNH, UBA, Double 11 plc, Julius Berger, UACN, Okomu Oil, Eterna, Transcorp andWema Bank, which had a negative impact on the Year-to-Date loss position, that rose to 6.54%. Market capitalization gain also dropped to N1.47 trillion or 12.09%, from the year’s opening level of N11.72tr.

Bullish Sector Indices
The sectoral performance indices were largely bullish, except for the NSE Banking and Oil/Gas that closed in red at 0.59% and 0.71% respectively. The Insurance, Consumer and Industrial goods index close green, after gaining 0.54%, 0.48% and 1.65% respectively.
Market breadth remains negative as decliners outnumbered advancers in the ratio of 23:16, as market activities were mixed as volume traded was up by 18.45% to 237.71m units, as against the previous day’s 200.69m shares. Transaction value dropped by 31.45% to N1.98bn from Tuesday N2.89bn. This volume was driven by transactions in financial services and healthcare stocks like Morison Industries, UBA, Sterling Bank, Zenith Bank, and FBNH.
The best-performing stocks were BOCGAS and Academy Press, after topping the advancers’ table, with gains of 9.93% and 9.68% respectively to close at N4.54 and N0.34 per share, on market forces and dividend recommendation respectively. On the flip side, Morison industry and Fidson Healthcare lost10% and 9.68% respectively, closing at N0.54 and N4.55 respectively,

Market Outlook
We expect mixed performance as bargain hunters and traders to take advantage this pullback buy for half-year earnings reporting season that will kick off any moment in this July. While discerning investors should target value stocks considering the low valuation to position for dividend income from the just concluded March year-end account, ahead of interim dividend from the banking stocks especially.
They may also take into consideration the expected economic reforms as government announces its much-awaited new cabinet, just as Central Bank of Nigeria (CBN) had rollout it plans to boost productivity and investment by lending to the private sector. This is aimed at reducing banks’ participation in government securities and lending more to the private sector of the economy. There is also the likely impact of portfolio repositioning for the second half of the year in the midst of expected Q2 numbers, especially banking stocks.

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CRO|Investdata Consulting Ltd
Tel: 08028164085, 08032055467