Rising Oil Prices May Boost Govt Spending, As Investors Eye Dividend Stocks

Market Update for Week Ended June 22 and Outlook for June 25-29

Recovery of Nigerian stock market was once again halted last week as it closed lower after a protracted correction and volatility spanning over five months, keeping many stocks undervalued. It has also created ample opportunities for bargain hunters who understand the importance of technical analysis in trading and investing to position lower and sell higher. Technical analysis enables you identify bottoming out and support levels that gives insight of accumulation phase of the market cycle, thereby putting money in the pockets of inventors at the mark-up stage.

As a result of the week’s loss, the NSE’s year-to-date return turned negative again at 1.00%, due to panic sell-offs and prolonged profit taking that started in late December 2017, despite which it still managed to emerge one of the best performing stock exchanges in the world for that year, as the NSE All-Share Index recorded 42% return.

The market started the year 2018 on a strong note that suspended the well-known January effect, before caving in to form a bearish channel that revealed apprehension among investors, made worse by effects of the coming 2019 elections. Add that to effects of the mounting trade war tensions that continues to threaten global economic recovery, even as crude oil prices rebounded again after the Organisation of Petroleum Exporting Countries (OPEC) and other non-member major oil producers, led by Russia, agreed to maintain 100% production cut compliance. All these in an already tensed environment where rate hike in the developed economies are exacting pressure on emerging and frontier markets. The ongoing tariff war is likely to weaken global economic growth and development, besides threatening international trade and investment that oil international relationships, since the world leaders of today chose to flex power with tariff imposition.

It is noteworthy that Wednesday’s signing of the 2018 budget into law by the President, seven months after it was first presented to the National Assembly did not reflect on the market as equity prices continued to decline. This is a pointer to the level of confidence investors have in the government and its economic managers. However, the 2018 budget is another opportunity for reflating the economy, this is however, if the needful is done at this point of implementation by fixing some of the nation’s structural imbalances to set Nigeria on a path of growth by judiciously executing projects in the budget to further boost national economic fundamentals.

Back to the market, the negative sentiments in the review period were evident in the selling pressure of 99% and buying volume of 1% that signaled smart money still flowing out in search of safety in the midst of the higher yield environment in developed market. Investors continue their cautious trading ahead of March full-year and second quarter earnings reporting season.  Last week’s profit-taking reflected on the money flow index that inched to 39.88 points, from last week’s 38.09 points as the Nigerian Stock Exchange’s benchmark All-Share Index traded below its 50-Day Moving Average (DMA) for just a week now, while remaining above the 100- Day Moving Average.

Equity Indicators Last Week

The composite NSEASI for the period under review fell by a significant 1065.49 basis points, closing at 37,862.53bps after opening from 38,928.02bps, representing a 2.74% decline on a low volume of transactions, compared to the previous week’s. The volume index of total transactions for the week was 0.45, as the index again broke down the psychological line of 38,000bps. Similarly, market capitalisation for the period close at N13.72tr from an opening value of N14.10tr, representing a 2.74% value loss as highly capitalized stocks recorded price depreciation to deepen investors’ red positions.

Advancers’ table at the end of the four trading sessions for the week were dominated by low price stocks especially insurance stocks as bargain hunters took advantage of their low valuation in the last five months of correction. Fund managers and other players that would earn quarterly fee or commission are positioning ahead of the half year earnings season, knowing that pension funds investment in equity market favours dividend companies with a five-year record of consistent payout which NEM and AXA Mansard are among.

The bearish performance  for the period impacted negatively on the NSEASI’s year-to-date returns, turn negative  at 1.00%, just as market captalistion growth stood at N54bn, representing 0.48% rise from the year’s opening value.

Negative Market Breadth

Market breadth during the week was negative as decliners’ outnumbered advancers in the ratio of 44:25 on low volume of trades and high selling pressure as traders took profit from the two-week bull-run to create another opportunity for new entrants in expectation of external stimulus and earnings news to influence the market positively.

The week’s trading was kickstarted on a negative note, losing 0.68% on Tuesday which was sustained till Friday, recording loss of 0.23%, 1.17% and 0.75% respectively due to selloffs and profit taking that led to the week 2,74% decline.

Sectorial performance for the period  were bearish as all indexes closed lower in the same direction with the general market,  except for the NSE Insurance that  closed higher with 3.55% while  AseM was  flat.

Activity in volume and value for the period were down by 36.78% and 16.20% to 1.1bn shares worth N15.47bn, from previous week’s 1.74bn units valued at N18.46bn.

Best performing stocks for the period were Japaul Oil and C & I Leasing topping the advancers table with 23.68% and 14.45% gains respectively, to close at N0.47 and N1.98 per share, due to low price and market sentiments. The worst performing were Honeywell and Lasaco that lost 16.06% and 10.53% to close at N2.09 and N0.34 respectively on profit taking and market forces.

During the period under review also, the share prices of Cement Company of Northern Nigeria (CCNN), Conoil and Beta Glass were adjusted for dividend recommended by the company directors.

Market Outlook
We expect, mixed performance with less profit taking this week as the 90-day statutory  deadline for release of March year-end accounts, which is expected to add  more impetus to the market if the numbers beat expectations. However, let your technical analysis insight guide at this point with the combination of positive economic data and company numbers in takin investment decisions.

Meanwhile, Investdata expects the impact of the rising oil price at the international markets to boost fiscal spending and support economic fundamentals.

Meanwhile, dividend income players are taking position ahead of more economic data, even amidst the expected sustained volatility and repositioning.

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Sub Topics

Review of 2018H1 Market & Economic Performance:  How Fiscal Reforms and Stimulus Will Support the Market/Economy in 2018H2.

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