Trend, Or Reverse: Investors Determine Market Direction, As All Eyes On Cabinet List

Market Update for the week ended August 2 and Outlook for August
At the end of Friday’s trading, the composite All-Share index of the Nigerian Stock Exchange (NSE) closed lower, extending the five consecutive weeks of free falls in the equity prices of many medium and high cap stocks hit new their 52-week lows in the midst of weak and mixed earnings performance of listed companies. This, expectedly, weighed in on investor sentiments.
Notwithstanding the negative trend, Investdata believes that the market is near to its moment of truth of whether the trend will reverse or the downtrend continues.
Already, the just concluded earnings season has revealed the true earnings power and direction of listed companies, even as the global monetary policy stance is looking down with a rate cut likely to impact many markets and economies, especially the emerging and frontier markets. Expectedly, the rate of capital outflows will slow down as the 10-year U.S Treasury yield hit its new four-year lows, coupled with oil price relatively stable above $60 that had supported Nigeria’s external reserves and the foreign exchange market.
This is just as investors await the allotment of portfolios to the cabinet ministers who were last week cleared by the Senate to jumpstart governance and implementation of the 2019 budget. The off-take of the Federal Executive Council will equally complement the various initiatives of the monetary authorities, which seeks to enhance lending to stimulate the productive sectors of the economy, as well as consumption thereby indicating a clear direction in no distance time.
The mixed global economy outlook as a result of the trade dispute between the U.S and China, multiple global trade, technology transfer, and geopolitical tension has forced monetary authorities of the Peoples Bank of China, the European Central Bank, the Bank of England, and other major central banks across the world to keep interest rates at historic lows since the commencement of the trade spat in 2018. We believe, therefore, that CBN’s Monetary Policy Committee may consider a further rate cut in its next meeting slated for September.

Movement Of NSEASI
Meanwhile, trading opened for the week on a positive note with the NSEASI gaining 0.11% at the end of Monday’s session amid price appreciation in medium and high cap stocks. This momentum was reversed on Tuesday and Wednesday when the benchmark index shed 0.46% and 0.37% respectively under heavy sell pressure. The trend was halted on Thursday with the market notching 0.11%, before sliding on Friday with 0.43% as selloffs resumed among highly capitalized stocks, among others, bringing the week’s cumulative loss to 1.03%, compared to the previous week’s flat position.
With the official close of the earnings season in the month of July, over 80 companies have presented their quarterly scorecards, most of which came mixed.
Nonetheless, there were some companies that presented outstanding score-cards. So far, they are Wema Bank, Unity Bank, Jaiz Bank, FCMB, Caverton, Cement Company of Northern Nigeria (CCNN), Lasaco, AIICO, Forte Oil, Northern Nigerian Flour Mills, Cadbury, as well as C& I Leasing. Investors and traders are waiting to see whether the interim dividend-paying companies, which are being expected anytime soon, will release earnings reports different from the part.
Also, at the end of last week, the prices of UACN Property, Nigerian Breweries, Transcorp, International Brewery, Dangote Sugar, NASCON Allied, Total Nigeria, Eterna, Ucap, Ecobank Transnational Incorporated and University Press, made new 52-week lows, while BOC Gases, on the other hand, touched a new year-high.
Despite, the negative market sentiment that was propelled by the mixed performances of many of the major bellwether’s half-year earnings result, we expect short-term speculative trading to shape the direction of market performance. The market breadth was positive with advancers outnumbering decliners in the ratio of 32:27, to continue its five-week down market.
Market activities for the week were mixed, with volume traded down by 28.97% to 759.23m shares, from the previous 1.07bn units, while value grew by 23.27% to N14.04bn from the previous week’s N11.3bn.
The best-performing stocks for the week Unity Bank and C &I Leasing, which topped the advancers’ chart with 27.59% and 21.10% gains respectively to close at N0.74 and N6.05 per share on positive Q2 earnings and market reactions. On the flip side, Eterna and Nigerian Breweries lost 19.40% and 16.67% respectively, closing at N2.70 and N50, on selloff and unimpressive earnings.

Where To Invest On NGSE, Outlook For August and September
The reversal of inflation rate month-on-month and the seemingly positive economic data may support the market, going forward, depending on government policy and faithful implementation of the 2019 budget. This is especially true of the improvement in Purchasing Managers Index (PMI) for the first month in Q3, which should also give insight as to where the economy is heading, if the economic managers do the needful to sustain this tempo.
With the Q2 earnings season officially ended, the half-year company scorecards will help investors ascertain the health and wellbeing of listed companies as they make investment decisions on which to hold or sell. This is especially true as equity prices remain low.
Traders and investors who understand the operations of the stock market should take this opportunity to position in some sectors for medium to long-term gains, especially in the services, industrial goods, banking, insurance and consumer goods which signals recovery move.
The actual Q2 numbers of these companies will help to project whether they are likely to post better Q3 earnings or not, which is the most important quarterly earnings since it foreshadows how the full year could pan out. At the same time, it pictures economic activities as measured by the GDP.

August As Unpredictable month
Although the market is currently at a crossroad of reversal or continued downtrend, the performance of the market in the month of August over the last five years has been negative on the NSE, according to INVESTDATA research. There may be pockets of oscillation going into the month; investors must keep their gaze on market trend and happenings for quick action. This notwithstanding, however, portfolio reshuffling is underway since more than 70% of listed companies have released their numbers.

What to expect in August and September
• Implementation of new CBN initiatives to stimulate productivity and consumption.
• Few quarterly and full-year earnings would be released during the period, which may not make much impact on market fundamentals, whether they are good or bad numbers.
• Few Interim dividend expectations, especially from stocks of in financial services sector.
• There will be high market volatility as a result of portfolio rebalancing after digesting the numbers released so far. Also, the source of funds flowing into the market may cause fluctuations, giving that both local and foreign institutional investors trade thereon. There is the factor of the Federal Government crowding the private sector out of the financial market, with their offer of high and mouth-watering rates as they borrow to fund the budget.
• Investors are expected to reshuffle their portfolios and invest in equities with strong fundamentals and prospects of growing their earnings, going forward.
• A more vibrant market as a result of players positioning for Q3 and Q4 reports, even as we expect liquidity to improve more.
• Market outlook for these months are dicey but invest wisely, using fundamental and technical tools like bids, offers, and volume, when making decisions.
• Managing risk and protecting capital at this point is very important, so you can determine when to buy or sell, by watching the stocks and the market, using technical analysis tools.

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