It was another bloody week for Nigeria’s equity market as the bearish sentiment deepened, just as the economy decelerated further ahead of next February’s general elections. The economic slowdown has been fueled by the lack of the much-needed policy reforms to support the early strong recovery recorded in 2017 when the economy exited recession in Q2 20017.
The recent Q2 mixed performance of listed companies with many consumer goods companies performing below market and analysts’ expectations should not be surprising as investors and consumer confidence are falling. This situation has expectedly heightened the ongoing selloffs in the market as the political risk continues to escalate on a daily basis, especially with the heightening anxiety over what could happen during and after party’s primaries and ahead of the presidential election in February 2019. It is also despite the Q2 numbers likely to support the prevailing low prices, due to low valuations and mispricing at this period.
Meanwhile, Nigeria’s foreign reserves hit a four-month low last week at $46.81bn, due to persistent drawdown and increasing investment withdrawals by foreign investors, as well as the improved yields in developed economies with their central banks recently hiking rates.
Already, the Central Bank of Nigeria (CBN), during the period under review hinted of a possible interest rate hike to stem any potential rise in inflation rate in view of the political spending ahead of 2019 general election and implementation of the 2018 budget.
The CBN is thinking of a minimum 50 basis-point increase in the interest rate, which will see Monetary Policy Rate (MPR) rise from the current 14% to 14.5%, at a time many are hoping for a drop so as to reduce the cost of borrowing in the economy. Recall that the retained the benchmark MPR at 14% at every meeting of its Monetary Policy Committee (MPC) since June 2016 as it pursued its objective of single-digit inflation rate.
The proposed rate hike is expected to help the CBN to manage the capital outflow that could necessarily impact negatively on the external reserves, which we all know is not in the interest of a Nigerian economy that is already static.
Back to the NSE, last week, a total of 15 companies released their quarterly scorecards and the general market sentiment for the numbers were negative with selling position at 99%, while buying volume stood at 1%. This was due to cautious trading and selloffs as investors and traders continued their flight for safety on the strength of unfolding events in the nation polity, mixed numbers and economic reports released recently not considering the low-price regime.
The negative market breadth widened as the energy behind the week’s trades was weaker as reflected in the money flow index that dropped to 23.51 points from previous week’s 29.76points, an indication that funds continue to exit the market.
Equity Indicators Last Week
The NSE composite All-Share index for the period had a negative performance to close the week lower and consolidate the previous week’s down market by losing significant 1053.20 basis points to break down another psychological line of 36,000 mark at 35,446.47 basis points, after opening at 36,499.67bps, representing a 2.89% decline on a low traded volume, compared to the previous week’s. The volume index of total transactions for the period was 0.43, as market capitalisation for the week was down by 2.86%, closing at N12.94tr from the previous N13.32tr. This was as a result of huge losses suffered by highly capitalized stocks, as foreign investors sell down their holding positions, due to insecurity and political drama playing out as politicians jostle for positions in the next political dispensation.
Low cap stocks again dominated the top advancers table for the period as bargain hunters took advantage of the low prices, especially the kobo stocks that are selling below previous per value, besides selloffs in equities that posted unimpressive Q2 numbers and panic sellout.
However, the market is becoming dicey on daily bases ahead of next year’s 2019 presidential election, especially given events in the National Assembly and some states, with the gale of defections and political rallies become the order of the day, even as it further fuels uncertainty.
The bleeding week as investors analyze the recent quarterly numbers and political environment has further worsen the NSEASI’s year to date negative returns to 7.31%, just as market capitalisation remained negative at N625.24bn, or 4.85% below the year’s opening value.
Bearish Market Breadth
The market breadth remained negative as the number of decliners outnumbered advancers in the ratio of 47:20 amidst intensified selloffs and profit taking due also to the mixed numbers posted by listed companies. We cannot rule out the impact of trade tensions now threatening global economic growth and expected hiking of rate to further induces capital flight to other investment windows in the nation’s financial market or outside Nigeria.
The benchmark Index opened the week on a negative note which was sustained through to make lower lows as market returned to its one-year position on a continued downtrend to close the period lower. All of these culminated in a loss position of 2.89% for the week, as against the previous week’s 0.37% loss recorded.
Sectoral indexes were all red for the week except for NSE ASeM that closed flat.
Market activities for the period were down in volume and value traded by 33.23% and 59.01% respectively to 925.63m shares worth N8.33bn from previous week’s 1.39bn units valued at N20.32bn.
The best performing stocks for the week were low priced stocks like Nemeth International Pharmaceutical plc and Niger Insurance that topped the advancers’ table with 33.33% and 30% gains respectively, closing at N0.80 and N0.39 each as a result of market forces and positive earnings from a loss position. The worst performing equities Secure Electronic and Cornerstone Insurance, which shed 19.44% and 13.79%, closing at N0.29 and N0.25 respectively on market trend and forces.
We expect a slowdown in the free fall of stock prices which will lead to mixed performance for the market in the new week, while volatility continues with corporate earnings being analyzed, ahead of interim dividend companies scheduled to publish their results even as market analysts, investors and traders digest those earnings reports already published. There would be repositioning on the strength of earning surprises and disappointing numbers that come below market expectations in the midst of events unfolding in the political environment. Investors should review their positions in line with their investment goals and take action as events unfolds in the global and domestic environment.
However, we would like to reiterate our advice that investors should go for equities with intrinsic value, especially during this season were more quarterly earnings are expected to hit the market, ahead of Q2 interim dividend paying equities in August due to the auditing process of their financials for half year.
We advise investors to allow numbers guide their decisions while repositioning in any stock, especially now that stock prices remain volatile amidst improving company, economic and market fundamentals.