NGSE Loss Momentum May Slowdown On Improved Liquidity, As Benchmark Index Nears 3-Year Low

Market Update for March 2
It was another volatile and bearish session on the Nigerian Stock Exchange on Monday, with the composite All-Share index extending its decline on persistent selloffs in medium and high cap stocks even at the peak of the earnings reporting season. Stocks suffered losses as investors continued to sell down in the midst of impressive audited results and dividend payout from banks like UBA Plc and Guaranty Trust Bank during the trading session last Friday and Monday.
We note that the market has not reacted as expected to these scorecards as their share price even recorded loss, reflecting a lack of liquidity in the equity market as investors continue to exit on the back of increasing regulatory risks in the banking sector, oscillating oil prices and the fear of the Coronavirus, especially as Nigeria has recorded its first case last weekend, amidst fears that there may more.
With the market almost touching its three-year low, making the equity market more attractive to discerning investors who can now enter choice stocks at a generous discount to the book value as shown by companies’ performance still looking up. This is enhanced by the economy that is in recovery and having a low-interest environment, besides the possibility of excess liquidity in the system due to the fact that more OMO bills are due to mature, following which there will be some inflow to the market at a time that they cannot be rolled over. There is also the possibility that some of the Federation Account Allocation Committee (FAAC) disbursement will, one way or the other, flow in search of fundamentally sound stocks with high upside potentials.
The Coronavirus outbreak is a global problem and the World Health Organization and other stakeholders are working to develop vaccines and drugs capable of restoring peace in the global economy and markets. Already, there is a resistance to the further decline as seen in China, the US and other developed markets which rebounded on Friday and again on Monday, following which we expect that the Nigerian market’s losing momentum would slow down as more companies releases their full-year audited accounts this month.
Meanwhile, Monday’s trading opened on the downside and remained in that direction throughout the trading session on negative sentiments and selloffs that pushed the NSE index to intraday low of 25,816.57 basis points, from its high of 26,170.58bps. Thereafter, it finished the day lower at 25,816.57bps on a high traded volume.
Monday’s market technicals were negative and mixed, with lower traded volume than the previous session in the midst of a negative breadth and high selling pressure as revealed by Investdata’s Sentiment Report showing 100% ‘sell’ volume. The total transaction volume index stood at 1.15, but the energy behind the day’s performance was seriously weak, as Money Flow Index reads 3.91points, from the previous day 3.94points, an indication that the market is lacking in liquidity.

Index and Market Caps
At the end of Monday’s trading, the NSE All-Share Index lost 399.89bps, closing at 25,816.57bps from its 26,216.46bps opening, representing a 1.53% decline, just as market capitalization dropped by N208.32bn to close at N13.45tr, from the N13.66tr opening level, which also represented a 1.53% depreciation in investors portfolios.
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The decline was due to selloffs in high cap stocks like Nestle, Unilever, PZ Cussons, Lafarge Africa, Guaranty Trust Bank, Zenith Bank, Access Bank, UBA, Ecobank Transnational Incorporated, and Honeywell Flour. This expectedly impacted negatively on the NSE, as the Year-To-Date loss stood at 3.82%, while market capitalization YTD gain dropped to N546.45bn, representing 4.21% growth over the year’s opening value.

Bearish Sector Indices
The sectorial performance indexes were largely bearish, except for the NSE Insurance that closed 0.30% up, while the NSE Consumer Goods index led the decliners, after shedding 5.19%, followed by the NSE Banking and Industrial Goods with 3.66% and 1.22% respectively, while Oil/Gas index was flat.
Market breadth was negative, with decliners outnumbering advancers in the ratio of 28:11, while market activity in terms of volume and value traded were down by 21.87% and 2.58% respectively as investors traded 325.26m shares worth N6.03bn, from the previous day’s 416.3m units valued at N6.19bn. This volume was driven by trades in Guaranty Trust Bank, Zenith Bank, UBA, Fidelity Bank and FBNH.
The best-performing stocks for the session were Law Union & Rock Insurance and AIICO Insurance that topped table, after gaining 10% and 7.79% respectively, closing at N0.99 and N0.83 per share on market forces and dividend expectations. On the flip side, Nestle Nigeria and Unilever lost 10% each, closing at N1,017 and N13.50 each respectively on selloffs

Market Outlook
We expect the losing momentum to moderate as funds may flow the way of stocks, dividend news and resist further decline as more audited earnings hit the market in March. This is despite the likely continuation of the mixed intraday movement in the midst of profit-taking, with investors buying increasing positions in high dividend-paying stocks ahead of dividend declaration. This is also against the backdrop of the fact that the capital wave in the financial market may persist in the midst of relatively low-interest rates in the money market, high inflation and unstable economic outlook for 2020.
Also, investors and traders are positioning in anticipation of the 2019 full-year earnings reports, amidst the changing sentiments in the hope of improved liquidity and positive economic indices which may reverse the current trend.
We see investors focusing on the upcoming full-year earnings season, targeting companies with strong potential to grow their dividend on the strength of their earnings capacity.
Again, the current undervalued state of the market offers investors opportunities to position for the short, medium and long-term, which is why investors should target fundamentally sound, and dividend-paying stocks for possible capital appreciation in the New Year.
This was noted in the 10 golden stocks and trading ideas for 2020, as discussed extensively during the Investdata 2020 Traders & Investors Summit held in Lagos.
Also, traders and investors need to change their strategies, because of the NSE’s pricing methodology, the CBN directives and their impact on the economy in the nearest future.
Meanwhile, the Investdata team welcomes you to a bullish 2020. The home study packs of our Invest 2020 Opportunities and Trade Ideas Summit, containing the 10 Golden Stocks for 2020 are available. To obtain your pack send ‘Yes’ or ‘Stock’ to 08028164085, 08032055467, 08111811223 now.

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