Market Update for the week ended January 25 and Outlook for January 28- February 2
Nigeria’s stock market last week closed higher in its second week of bull-run on the back of positive sentiments for banking and blue chip stocks ahead of the 2018 earnings season,. It broke out its recent resistance level as well as the 31,000 psychological line on a high traded volume despite the heightening political tension in the country, just days before the Presidential elections hold on February 16, whose outcome will determine direction of the market.
Bargain hunting during the period was driven by the undervalued states of many equities, supported by inflow of funds as institutional investors reposition their portfolios ahead of earnings season. This reflects high demand for stocks with dividend yield likely to look up in expectation of corporate earnings which kicks off early February.
The relative improvement in macroeconomic indices at the end of Q4 2018 is likely to reflect on the expected numbers, while the slight drop in the non-performing loans of banks as revealed by Godwin Emefiele, Governor, Central Bank of Nigeria (CBN), will boost the 2018 full-year earnings report of some banks. Already, the CBN governor was reported last week as hinting of stiffer banks’ capital formation before the end of June to ensure financial institutions in the country become stronger.
The jump in crude oil price at the international market during the week was due to news that U.S may sanction Venezuela due to geopolitical crises in the country, is expected to further impact Nigeria’s reserve and support the foreign exchange market. This is just as the global economy outlook remains unstable, with weaker US Dollar, stronger commodities and recovering stock prices, after emerging market stocks suffered huge setbacks in 2018, amidst hope that the trade dispute between the U.S and China will subside soon. China is likely to come to the negotiation table with a deal that will include trade balance with the U.S. This is expected to drive emerging economies and their markets, if the world’s leading exporter (China) no longer floods the world unfairly with its cheap products.
A look at the chart on emerging markets shows there is a breakout of the big down trend line this month, after one year.
Back to the market, it was a positive outing for the week, with the Nigerian Stock Exchange (NSE) All-Share index opened the week trading on a negative note with a decline of 0.88% on profit taking which was resisted on Tuesday, amidst demand for stocks increased to close the day flat at 0.01%. This was sustained till Friday, as the index gained 0.46%, 0.36% and 1.41% respectively, bringing the week’s gains to 1.36%, almost enough to wipe off the market’s year to date loss, now standing at 0.01%, which consolidating previous week’s 3.94% gain.
Strong positive sentiment for the four sessions of bull-run was due to increased bargain hunting as the index broke out its first resistance level in 2019 to sustain the V chart pattern already formed.
Momentum behind the week’s performance was flat and weak, despite closing higher ahead of the Presidential polls, as reflected in the money flow index of 35.51 basis points, as against 34.36bps in previous week. Notwithstanding the fact that some funds entered the market, liquidity level remained low.
Equity Indicators Last Week
The NSEASI for the period under review gained 421.46bps to close at 31,426.63bps, after opening at 31,005.17bps, while touching a high of 31,428.64bps on a very high traded volume that reflect strength and reveal strong buying interest for the week, representing a 1.36% growth. Similarly, market capitalization was up by N221.46bn to close at N11.72tr, up from N11.56tr, representing 1.36% appreciation in value, which impacted positively on the NSEASI’s year-to-date negative returns, reducing it to 0.01%, just as market capitalization turned positive, with the listing of 745,234,886 additional ordinary shares of May & Baker Plc to the daily official list, following its successful Rights Issue, compared to the year’s opening value of N11.72tr.
Mixed Sectors Indices
The sectorial performance indices for the week were mixed and largely bearish except for the NSE banking index which gained 7.15%, helped by increased buying interest in Guaranty Trust Bank, Zenith Bank, UBA, Access Bank and Fidelity Bank, among others; just the insurance index notched 1.95% on the back of gains by Royal Exchange, Aiico Insurance and Linkage Assurance. The NSE Industrial Goods index sustained the biggest loss of 2.02%, following profit taking in the shares of Cement Company of Northern Nigeria, among others.
Market breadth for the week remained positive, with advancers ’outnumbering decliners in the ratio of 40:25, to continue the previous week’s up market.
Market activities were up in volume and value by 28% and 23% respectively at 1.81bn shares worth N17.17bn, up from previous week’s 1.26bn units valued at N13.35bn.
Fidelity Bank and Caveton were the best performing stocks for the week, topping the advancers’ table with 24.38% and 22.63% gains respectively to close at N2.50 and N2.33 per share on low price attraction and expectation of positive earnings. On the other hand, Resort Savings and Sovereign Trust Insurance lost 23.16% and 19.03% respectively, closing at N0.22 and N0.21 on market forces and profit taking.
Market Outlook
We expect a mixed performance and a pullback to halt the bull-run due to intensifying political uncertainties and insecurity resulting from the Federal Government’s decision last week to unilateral suspension of and appointment of an acting Chief Justice of Nigeria (CJN) without regard to the rule of law. This move by government in less than three weeks to presidential polls will further rattle investor’s confidence in the market and the system entirely. The possibility of slowdown in position taking on blue-chips stocks for short term gains has increased; however, gains recorded in the two previous weeks are not sustainable in the near term owing to the elevated risk in the domestic and external market.
The ongoing volatility will persist as investors and fund managers reposition their portfolios, with eyes fixed on political space and ahead of full year company earnings position and post-election market dynamics. These are likely to drive prices north, or south, while determining market direction before or after the Presidential Election.
Investors should review their positions in line with their investment goals, strength of the company numbers and act as events unfold in the global and domestic environment.
However, we would like to reiterate our advice that investors should go for equities with intrinsic value,
We advise investors to allow numbers guide their decisions while repositioning in any stock, especially now that stock prices remain low in the midst of mixed company numbers, weak economic and market fundamentals.
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Ambrose Omordion
CRO|Investdata Consulting Ltd
info@investdataonline.com
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Tel: 08028164085, 08032055467
