Stock Update

Market Update for the week ended July 1

NSE Opens Q3 Red, Amidst Negative Macroeconomic indices and Earnings season

The Nigeria equities market opened trading activities for the third quarter under pressure, closing in red as investors went on a flight to safety while trying to reduce risk amidst growing political concerns in Nigeria and around the globe. The week recorded a four-day decline that saw the composite NSE All-Share Indexshedding 4.39%, as profit taking and effects of the Brexit vote a fortnight ago continued.

Ahead of last Friday’s trading on the floor of the exchange, the NSEASI and market capitalisation were up about 3.34% and N314 billion respectively, for the first half of the year. This was attributed to market rebound in May and June as a result of the budget approval by the National Assembly and its signing into law by President Muhammadu Buhari after weeks of disagreements between the federal legislators and Presidency. Also, the new market-driven inter-bank foreign exchange policy that boosted investor confidence to wipe a four-month loss that turned many portfolios positive and into profit.

Market performance for the period under review after a prolonged downtrend wasmild as the nation’s stock market indices closed at 29,597.79 and market capitalisation at N10.17 trillion respectively, after touching a low of 22,330.96 and N7.72 trillion within the time under consideration. It however recorded improvement in market development and growth as technology transformed the face of the market to promote transparency that boosted both domestic and foreign investors’ confidence. It also made  trading and investing simple as more online platforms were opened with  investors now able to place trades from the comfort of their homes and offices, coupled with access to real market information that quicken  investment decision as more operators create  online portals for clients to trade directly on their own.

Recall that within this period, macroeconomic indicators were inconsistent and negative to reflect the impact of global economic transition and monetary policies to reform the financial institutions after the crash of crude oil prices in international market. This has heightened exposure of many banks and financial markets in general. This triggered struggling in many economies of today which our nation is suffering from at the moment, coupled with nuclear fiscal and monetary policiesof the government. The slowdown in the system have reflected in the key indicators such as the Gross Domestic Product (GDP) that is currently  in negative territories, inflation rate above 15% as at May and is likely to move higher when June statistics is released. Others are:high interest rate, high unemployment rate and  low exports, regardless of  capital market indicators  moved to  positive direction. Nigerians are more dependent on imports, and while internal debt burden grew, so did the nation’s investment in infrastructure. Oil prices were volatile and remained largely unfavourable, but stayingabove the 2016 Federal Government budgeted benchmark of $38 per barrel, after it had recovered 26% in the second quarter to record the biggest gain since 2009. If the current recovery of  oil price is sustained, the economy will likely rebound despite the slowdown being witnessed as the  government implements 2016 budget and provide palliatives to stimulate and drive the change concept to jump start the economy, create new investment opportunity that will influence the stock market and the economy positively.

The stock market in many economies provide the barometer by which the economy is gauged, the Nigerian equity market does not fully reflect the size of the economy. But then, any acceleration or declining in the economy is first recognised on the exchange.

As we enter into the remaining half of the year, we expect a mixed performance that will be driven by government policy and implementation of 2016 budget as fiscal and monetary policy complement each to drive economic growth and development. Further recovery of oil price will fast track infrastructure development.

Index and Capitalisation Movement

The week in brief

The composite index NSEASI shed 1,344.26 points to close at 29,305.40 from an opening figure of 30,649.66, representing a 4.39% decline as result of investors and traders flight to safety seeking to reduce their risk exposure in this unstable financial market. The March full year scorecards released so have been below market expectation as few declared dividend, while many others are in loss position.

The half-year earnings season will kickoff this  week  after the holidays, but the interim dividend paying companies will release their results a little late because such results would be audited before being made available to the market. The market capitalisation for the period under view closed lower at N10.07 trillion from opening value of N10.35 trillion. The bearish sentiment was reflected on the mixed class of stocks that dominated the advancers’ log with less appreciation in price for the period under review. The NSEASI’s year-to-date return currently stands at 2.32 percent to remain in positive position.

Meanwhile, market breadth for the period under review was bearish and negative as the number of decliners outpaced advancers in the ratio of 52 to 22 on huge volume of buy positions of 3% and selling position of 97 percent. This resulted from profit taking, political concerns in the country and around the globe as FX policy induced rally faded away owing to reality of fundamentals especially the weak earnings release during the period under review

The international markets for the week under review moved sharply up to recover the huge losses suffered as result of the vote by Britons to leave EU, the easing off was due to investors, with traders realising that the process will take over two years and earnings season has started with numbers trickling to the market.The U.S markets were in the green amid expectations of more monetary policy.

In Europe, the ECB has expressed concerns that the economy could experience a slowdown from the Brexit, but hope for easing led to high stock prices. China has recently cut its interest to reduce cost of funds that will drive economic reforms. Global markets rebound reflected on emerging markets to record strong gains as investors perceived them as less exposed to effects of the Brexit voteto leave the European Union despite the weak economic fundamentals.

Back home, the market opened the week on a negative note with 2.43% drop and continued on the second trading session to close down with 1.60%. The mid-week’s was in red of 0.54% and reversed on Thursday with a marginal 0.8% gain, before a pull back to the negative tertiary by 0.89% to close the week’s trading. The NSEASI and other sectorial indices closed in red, except for NSEASEM that closed higher.

The week’s transaction levels, measured by aggregate volume and value, decreased by 38.49 percent and 35.29 percent respectively in contrast to previous week’s closing level. In the week under review, a total of 1.47 billion of shares valued at N17.07 billion were exchanged in 21,246 deals, compared to 2.38 billion shares valued at N26.38billion exchanged in 28,072deals in the previous trading week.

The Financial Services sector led the activity chart in term of volume, with 1.17 billion shares valued at N10.24 billion traded in 12,697 deals; thus contributing 79.59 percent and 60.01 percent to the total equity turnover volume and value respectively. The Conglomerates sector followed with 133.61million shares worth N300.10 million in 1,081 deals. The third place was occupied by the Consumer Goods sector with a turnover of 110. 75 million shares worth N4.90 billion in 3,495 deals. The reduced trading data revealed increasing fear, as many investors are running away from the market to protect their funds.

During the week under review, the share price of two companies: Cadbury and Smart Products, were  adjusted  for dividend declared. Two others: Oando and Royal Exchange Insurance, released their first quarter earnings reports, while full-year reports were presented to investors by Oando, Honeywell, Avon Crowncaps, Royal Exchange, Northern Nigerian Flour Mills, Academy Press, Chellararms, 7-Up, Rak Unity  and Red Star Express. Also, 7-Up proposed a N1.60 dividend for approval to shareholders whose names are  in the register.  Julius Berger and Conoilled the advancers chart with 15.85 and 15.65% gains respectively, while the flip side was topped by Smart Products and Honeywell which suffered 25.49 and 22.6% decline respectively.

Market Outlook

The market is likely to slow down at the beginning of the week due the holiday and traders waiting to see the expected Q2 earnings rolled in before taking any action, because the March year-end earnings reports released so far were below market expectation. Also Q2 earnings season that will kick off in July may further support the bull transition so far. However, it will depend on the strength of the numbers released and market forces.  Technically, markets still  look healthy for recovery with the oscillating mood but investors should target valued stocks to see them through in case market go the other way. The candlestick formation pattern as at close of trading last week signals recovery after losing much that morning but reduce loss as buying position improved that day. Our advice is still that any position now should be in stages as we wait to see how the global markets will adjust this morning. If you have N500,000 to invest in a stock for now, begin with buying N150,000 worth of that stock and watch market trend and the stock’s direction to increase your purchase or sell the first position if market go against you. The weekly buy position in volume was 3% while sell position volume in 97%. This supports down market, depending on  market forces.

STOCKS TO WATCH

Ucap, UBA, Oando, Eterna, FCMB, Zenith Bank, Livestock, Transcorp, , Custodian & Allied, African Prudential, Access Bank and Tigerbrand

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