Market Update for September 2
The Nigerian stock market had a positive but mixed session on Monday, recording back-to-back gains on the strength of ongoing portfolio adjustments as trading for the last month of the quarter begins. It was also in preparation for the Q3 earnings season, considering the low price attraction in the midst of the unpredictable economy with all eyes still on the managers of the economy and expected stimulus in form of economic policies that will provide the highly needed direction.
According to data by Investdata Research, the performance of Nigeria’s equity market in the month of September over the past 10 years has been mixed and dependent on the situation of the economy and associated events within the period. These include the effects of interest rates, oil price, government economic policies as well as cycles, corporate performance, investor confidence, and liquidity level. Others include the country’s political situation, goings-on within the global economic space and some others that influence the stock market during this period of the year. See the table below.

In the period under review, average close for the month of September has been -0.30. The market closed up in just four years, and down for the remaining six. This, we believe, should give investors an insight into what to expect in the new month, considering all the macroeconomic indicators and other predominating issues surrounding the business environment.
Meanwhile, the composite index opened for trading Monday on the upside and continued till midday before pulling back in the afternoon when it touched intraday low of 27,463.76 basis points, from its high of 27,677.37bps. It then retraced up in the last few minutes, closing the session higher at 27,565.09bps above its opening points on a low traded volume.
Monday’s market technicals were positive and mixed, with volume traded lower than the previous day’s, while market breadth favoured the bull. Bn Market sentiment was mixed as revealed by Investdata’s Daily Sentiment Report, showing ‘buy’ volume at 47% and a ‘sell’ position of 53% on total daily transaction volume index of 0.54.
The momentum behind the day’s performance was weak, even as it is looking up, as Money Flow Index read 49.33 points from the previous session’s 43.98bps, an indication that funds entered some stocks and the market, just as the rate of selloff slowed down in expectation of a positive stimulus. This expectation is however under threat by the nation’s high debt profile since 2015, made worse by the constrained declining revenue due to the unholy alliance of the poor tax-to-GDP ratio, instability in crude oil price and rising level of crude oil theft/pipeline sabotage in the country. The Debt Management Office (DMO) and the Finance Ministry continue struggling to convince all that Nigeria is not over-borrowed just yet, a situation that makes the recent $9.6bn P&ID judgment debt against the country even most worrisome.

Index and Market Cap
At the end of Monday’s trading, the Nigerian Stock Exchange (NSE) All-Share Index (ASI) gained a miserly 39.28bps, closing at 27,565.09bps, after opening at 27,525.81bps, representing a 0.14% rise. Similarly, market capitalization inched N19.1bn, closing at N13.41tr, from its opening N13.39tr, also representing 0.14% value gain.

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Monday’s upturn was driven by buying interest in low, medium and high cap stocks like Nestle Nigeria, Zenith Bank, Nigerian Breweries, Unilever, Cement Company of Northern Nigeria, Lafarge Africa, Okomu Oil, Oando, International Brewery, Flourmills, GSK, UBA, Cornerstone Insurance, and Continental Reinsurance, among others. These slightly reduced the NSE’s Year-to-Date loss to 12.30%, just as YTD market capitalization gain stood at N1.64tr or 14.84% from the year’s opening level of N11.72tr.

Bullish Sector Indices
All the sectoral performance indexes were in the green, led by the NSE Consumer Goods index gaining 3.12%, Followed by NSE Industrial goods with 1.45%, while Banking, Insurance, and Oil/Gas indexes chalked 0.94%, 0.44%, and 0.18% respectively.
Market breadth was also positive, with advancers outnumbering decliners in the ratio of 22:17; while market activity in volume and value traded were down by 10.63% and 14.29% respectively at 111.52m shares worth N1.56bn, from the previous day’s 124.78m units valued at N1.82bn. Volume for the day was driven by trades in stocks such as Zenith Bank, UBA, FBN Holdings, UACN, and Guaranty Trust Bank.
CCNN and Cornerstone Insurance were the best-performing stocks, gaining 9.78% and 9.52% respectively to close at N17.40 and N0.23 per share on market expectation and forces. On the flip side, UACN and Champion Brewery lost 10% and 9.80% respectively to close at N4.50 and N1.38 on profit-taking and market forces.

Market Outlook
We expect the mixed performance to continue in the midst of profit-taking and portfolio repositioning. The prevailing low liquidity, oscillating oil price, and confidence issue ahead of Q2 GDP data which had kept the traded volume low due to caution and indecision among traders and investors.
There are also the effects of market players speculating ahead of the Q3 earnings reports in October while taking advantage of the seeming improvement in some other economic indices released recently, as well as corporate earnings showing the true position of Nigeria’s listed companies.
However, long-term investors are reshuffling their portfolios in anticipation of interim earnings reports of dividend-paying companies.
Discerning investors should target value stocks considering the current low valuation as they position for dividend income and capital gains, especially as the market’s Price to Earnings ratio remains attractive at 5.45x, which is well below the 8.24x average of its peers and its 9.56x five-year average. The current situation has revealed the existence of value and the high upside potentials for a rally. But then, wait to confirm reversal before jumping into a new position.
Investors should also take into consideration the expected economic reforms as President Buhari has assigned portfolio to the ministers. Central Bank of Nigeria (CBN) had earlier rolled out plans to boost productivity and investment by instructing the banks to lend more to the private sector. This is aimed at reducing banks’ participation in government securities and lending more to the private sector to drive economic growth.
There is also the likely impact of portfolio repositioning for the last quarter of the year ahead of Q3 financials in the midst of analyzing Q2 numbers and unfolding political events.

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Ambrose Omordion
CRO|Investdata Consulting Ltd
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