Market Update for the Week Ended March 13 and Outlook for March 16-20
It was a turbulent week on the Nigerian Stock Exchange (NSE) with equity prices suffering huge declines due to panic selling and dumping propelled by heightened fears of the Coronavirus, impacting global economic activities, while production facilities were shut and commodity prices, especially crude oil. The significant drop in crude oil prices spiked fears over the capacity of Nigeria’s reserves to withstand the shock, resulting in speculations that weakened the Naira against major currencies. The situation was however saved by a message by the Central Bank of Nigeria (CBN) to assure all that there was no plan for Naira devaluation (READ MORE).
The global markets during the period under view hit their new lows, just as the benchmark All-Share Index of the NSE hit its 11-year low, just weeks after the market had ranked among the world’s best performing at the beginning of the year.
The pullbacks that started in the last week of January due to factors ranging from the Q4 unaudited results released without corporate actions, which failed to meet investor expectations; just as the upward adjustment in the Cash Reserve Ratio (CRR) by the Monetary Policy Committee to 27.5% from 22.5%. The CBN’s move was part of measures to curtail the rising inflation driven by many factors like the continued border closure since August 2019; the rising spate of insecurity and low farm produce owing to the banditry, kidnapping and Fulani herdsmen-farmers’ clash in the North West, Boko Haram menace that kept Nigeria’s North East on lockdown, and the general level of insecurity across the country.
All these triggered outflows of funds from equity assets in the previous month which has lingered until the peak of the 2019 audited corporate earnings reporting season, reversing all the expectations amidst the persistent selloffs in the market due to fear of global pandemic now ravaging the world.
Also, last week, Nigeria’s Senate began the amendment to the Finance Act 2019, as requested by the executive arm, to reflect new economic realities, even as the price of Brent crude slumped below the 2020 budget benchmark of $57 per barrel. Also, within the period, the House of Representatives suspended indefinitely, discussions on the Federal Government’s request to borrow $22.8bn, as suggested by investdata in its update analysis a fortnight ago, based on realities that global economic happenings do not support such.
Movement Of NSEASI
The rapid spread of the Coronavirus contagion has triggered a wave of selloffs with the NSEASI losing all of 13.49% in just one week, pushing many stocks to a new loss of between 52-week and 15 years. It was a free fall of stock prices for four straight trading sessions of the week, except for Friday when the index closed marginally up by 0.17%.
Consequently, the benchmark index lost 3,546.26 basis points, after the week opened trading at 26,279.61bps, touching an intra-week low of 22,550.10bps from high of 26,141.21bps on a serious panic selloff and dumping of high cap stocks, even as some companies are yet to release their 2019 full-year results. The index closed the week at 22,733.35ps, on a huge traded volume when compared to the previous week, just as the NSE index broke down four psychological levels of 26,000, 25,000, 24,000 and 23,000 in just five trading sessions.
Also, market capitalisation was down by N1.85tr, closing at N11.85tr, from an opening value of N13.7tr, representing a 13.5 % value loss, in a week the share prices of United Capital, Africa Prudential, Infinity Mortgage Bank, Transcorp Hotel and Zenith Bank, were adjusted for dividends of 50 kobo, 70 kobo, 3.5kobo, seven kobo and N2.50 per share respectively.
The selling pressure hit all the sectors of the exchange, with just two stocks featuring on the week’s gainers’ table. The negative sentiment and selloffs during the period were obvious in the market breadth as losers outnumbered gainers in the ratio of 64:2, even as the energy behind the week’s performance was weak, while Money Flow Index read 39.65bps, compared to the 44.44bps of the previous week.
The high volume of trade indicates the increased selloff in all the sectors, by traders and investors while they sought to cut their losses and hold cash as revealed by the Investdata’s Sentiment Report for the week showing 5% ‘buy’ volume, and 95% ‘sell’ position, on a transaction volume index of 2.74
Mixed Sectoral Indices
All the sectoral indexes for the week were bearish, with the NSE Banking index leading the decliners, after shedding 26.15%, followed by NSE Consumer Goods that lost 14.79%, while he NSE Oil/Gas, Insurance and Industrial Goods, followed with 8.51%, 5.66%, and 5.41%, respectively.
Market transactions, in terms, of volume and value for the week, were up by 118.77% and 68.01% respectively, as investors exchanged 3.96bn shares worth N43.7bn, as against the previous week’s 1.81bn units valued at N26.01bn. The week’s volume was mainly driven by trades in financial services stocks, especially Zenith Bank, Guaranty Trust Bank, and UBA
Consolidated Hallmark Insurance and Cornerstone Insurance were the best-performing stocks for the week, topping the advancers chart with 7.14% and 6% respectively, closing at N0.30 and N0.53 per share on market forces. On the flip side, Cadbury and Zenith Bank lost 38.89% and 36.47% respectively, closing at N4.95 and N11.90 per share on panic selling and dumping.
We expect a mixed performance this week, as the market enters the second half of March, more audited earnings reports and dividend declarations, but market reaction to the epidemic this week as the virus hit more countries, dictating the market’s direction in the midst of the depressed price of fundamentally sound stocks and bargain hunting by market players. This has also resulted in significant improvement in Dividend Yields of stocks, even as we note the fact that funds managers were holding on to cash before last week’s price meltdown.
This is just as more liquidity flows to high Dividend Yield stocks with sound fundamentals, which will also be based on the seemingly positive outlook for the domestic economy, and despite the mixed outlook for 2020 from various analysts.
While discerning investors should take advantage of the current low stocks valuation to position for the medium to long-term, it is noteworthy that the Nigerian equity market is selling at a discount and therefore offers high upside potential.
We should, 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 mixed outlook.
Again, the current undervalued state of the market offers investors opportunities to position for the short to 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 Opportunities & Trade Ideas Summit.
Also, traders and investors need to change their strategies, because of the NSE’s pricing methodology, CBN directives and its impact on the economy in the nearest future.
Meanwhile, the home study packs of Invest 2020 Opportunities and Trade Ideas Summit containing the 10 Golden Stocks for 2020 are available with an average return of 13.37% in less than 30 days. To obtain your pack send ‘Yes’ or ‘Stock’ to 08028164085, 08032055467, 08111811223 now.
CRO|Investdata Consulting Ltd
Tel: 08028164085, 08032055467