Repositioning Continues, As Investors Review Implications of MPC Outcome On Capital Wave

Market Update for November 26
Stocks closed lower on the Nigerian Stock Exchange (NSE) on Tuesday as profit-taking engulfed the market, pulling back the composite index despite the fact that kobo stocks extended their rally.
As noted by Investdata Research and other analysts, members of the Monetary Policy Committee (MPC) unanimously voted to retain the benchmark Monetary Policy Rate (MPR) at 13.5%, among others, as they seek to observe the impact of various unconventional policies and directives of the Central Bank of Nigeria (CBN). We note also that this cocktail of policies has helped to trigger national productivity as revealed by the recently released Q3 GDP rate, which grew at 2.28%, as against the Q2 position of 1.94% in 2019 and 1.81% in the third quarter 2018 (READ MORE). Another reason given for the decision to hold rates by the MPC is the spike in inflation rate for consecutive two months to 11.61% from 11.24% in September, due to the Federal Government’s closure of Nigeria’s land border; and poor harvest season, among others.
The decision of the MPC to leave the various instruments unchanged was also to protect the nation’s external reserve, as any form of adjustment down may trigger selloffs by foreign portfolio investors in any of the investment windows which may further put pressure on an already declining reserves. This oil price oscillation and the future oil market have made the MPC call for a review of 2020 budget oil benchmark price to $57 per barrel in order to build a fiscal buffer to stimulate the economy.
Tuesday’s trading started on the upside in the morning and remained so into midday before pulling back in the afternoon on profit-booking and selloffs in some medium and high caps stocks. This dragged the NSE index to an intraday low of 26, 883.33 basis points, from its high of 27,096.53bps, to close the session lower at 26,8833bps on a flat breadth.
Market technicals for the day were negative as volume traded was lower than the previous day, with breadth at equilibrium, just as there was high selling pressure as revealed by Investdata’s sentiment report of a 100% sell position. The day’s total transaction volume index stood at 0.66, even as the energy behind the day’s performance was slightly up, with Money Flow Index reading 49.14 points, from the previous 48.33bps, indicating that funds entered some stocks, even as the market closed lower.

Index and Market Cap
At the end of trading, the composite NSE All-Share Index lost 152.45bps, closing at 26,883.33bps from its 27,035.78bps opening, representing a 0.56% drop, while market capitalization lost N73.58bn, closing at N12.96tr, from the opening value of N13.05tr, which also represented a 0.56% depreciation in value.
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The session’s decline was driven by selloffs and profit-taking in Dangote Cement, MTN Nigeria, Nestle Nigeria, Zenith Bank, UBA, Access Bank, Unilever, Transcorp and FCMB. These impacted negatively on the NSE’s Year-to-Date loss, as it increased to 14.47%, while market capitalization gain dropped to N1.26tr, representing 10.68% growth from the year’s opening value of N11.72tr.

Bearish Sector Indices
The sectoral performance indexes were largely bearish, except for the NSE Consumer Goods index that closed in the green with 0.38%, while the NSE Banking index led the decliners, after losing 1.20%. It was followed by the NSE Insurance and Industrial goods with 0.66% and 0.11% down respectively.
Market breadth was flat just as advancers were equal to decliners in the ratio of 17:17, while market activities were mixed as volume traded was down at 209.97m shares, compared to 230.65m units traded on Monday, while value was up to N3.21 billion, from previous day’s N3.10bn. This volume was boosted by transactions in stocks like United Capital, Zenith Bank, Dangote Sugar, Guaranty Trust Bank, and FBNH
Regency Assurance and Sovereign Trust Insurance were the best-performing stocks for the session, topping the advancers table, with gains of 10% each to close at N0.22 respectively, on the back of market sentiments for kobo stocks and the sector’s ongoing recapitalization exercise. On the flip side, AIICO and Unilever lost 9.09% and 6.57% respectively, closing at N0.70 and N16.30 on profit-taking and weak Q3 earnings report.

Market Outlook
We expect the intraday oscillation to continue on profit-taking and implication of MPC outcome on the capital wave and repositioning in value stocks will persist. The changing sentiments in expectation of improved liquidity as interest rates drop in the money market had trigger buying interest in stocks regardless of a high risk that is associated with investing equity.
The current undervalued state of the market offers investors opportunities to position for short and medium-to-long-term views. We expect that investors would target fundamentally sound and dividend-paying stocks for possible capital appreciation as the year draws down.
Also, traders and investors need to change their trading strategies due to NSE’s pricing methodology, CBN directives and its impact on the economy in the nearest future, and another fiscal policy initiative that may provide liquidity for the economy and market.

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