Volatility Persists As Q3 Earnings Help Investors Rebalance Portfolios

Market Update for December 6

The Nigerian Stock Exchange (NSE) had quite a reversal at the end of Thursday’s trading with its benchmark All Share Index closing lower on profit taking after two consecutive sessions of up market. The strong volatility and negative sentiment during the trading session was attributed to selloffs in highly capitalized stocks on the exchange.
The NSEASI started our trading on a slight upside in the morning before pulling back sharply in the mid-morning to afternoon, before retracing up towards the end of trading after touching intraday lows of 30,773.13 basis points from highs of 31,160.36bps but finally finished the day at 30,819.10bps on a high traded volume and selling pressure.
The pullback is expected to create more buying opportunities ahead of the Santa Claus and year end rally as fund managers and other market players reposition their portfolios for the post-election rally and the 2018 full year earnings reporting session in February and March 2019. The recently released third quarter corporate earnings and economic data should have guided investors on how to position in the coming months.
Market technicals for Thursday were negative and mixed as volume traded was higher than previous day’s in the midst of negative market breadth and strong selling pressure as revealed by Investdata’s Daily Sentiment Report, which shows a sell position of 88% and 12% buy volume. The volume index for the day’s total transactions was 1.10.
The force behind the market’s performance is still relative stable, as Money Flow Index rose slightly to 26.79bps, from previous day’s 26.21ps, indicating that funds are entering the market and some stocks, irrespective of the prevailing low liquidity.

Index and Market Cap
NSE composite index lost 332.58bps at the end of the session, closing at 30,819.10bps after opening at 31,151.68bps, representing 1.07% decline, just as market capitalization fell N121.42bn at N11.25tr from an opening value of N11.37tr, representing a 1.07% value loss.
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The downtrend witnessed was due to selloffs in high cap stocks like: Nestle, Dangote Cement, Stanbic IBTC, Zenith Bank, Unilever, Access Bank, Wema Bank, Transcorp and FBNH, pushing up Year-to-Date loss to 19.41%. Market capitalization YTD decline jumped to N2.58tr from its opening level in January, representing 17.50% down.

Mixed Sectors Indices
The sector performance indices were largely bearish, except for the NSE Insurance and Oil/Gas that were in green, just as market breadth turned negative with decliners outnumbering advancers in the ratio of 22:17.
Market activities were up in volume and value by 41.43% and 7.79% as 280.94m shares changed hands for N2.49bn from the previous day’s 198.64m units valued at N2.31bn. Transaction volume was boosted by financial services and hospitality stocks like: FBNH Diamond, Ikeja Hotel, Guaranty Trust Bank and Zenith Bank
Champion Brewery and Mutual Benefits were the best performing stocks, topping the advancers table, after gaining 9.66% and 9.52% respectively, closing at N1.59 and N0.23 each on market forces. The decliners’ side was led by Niger Insurance and AG Leventis which lost 9.09% and 6.90% respectively, to close at N0.20 and N0.27 each, on market forces.

Market Outlook
We expect this volatility to be sustained as bargain hunting and portfolio repositioning for year-end to shape performance of the market ahead of Santa Claus rally, as number of companies hitting new 52-week low are on the increased to reflect undervalue state of the market.
The ongoing volatility will persist as Q3 numbers assist investors and fund managers rebalance their portfolios, while watching the political space and ahead of the expected Q3 GDP and full year company earnings position. 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 weak company, economic and market fundamentals.

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CRO|Investdata Consulting Ltd

Tel: 08028164085, 08032055467