Weakened appetite for EM assets, political uncertainties to keep market performance downbeat

THE DOWN TURN IN THE domestic market continued into last week, the second week of Q4 2018, raising more questions regarding the timeframe for the end of the current weak performance.

While most analysts say technical indicators suggest a potential rebound in the market, given the 14-day RSI of 34.99 points, which indicates an oversold market, the lingering political uncertainties as well as the weakened appetite for emerging market assets is seen keeping market performance downbeat in the short to medium-term.

Specifically, some see the market rebounding, albeit marginally, majorly on earnings releases for the third quarter ended September, a view countered by yet another group who are of the view that the markets may ignore earnings and remain bearish until the conduct of the general election in the first quarter of next year.

“As we expect 9M: 2018 earnings to start trickling in, we believe market performance could potentially be swayed by investors’ reaction to the corporate releases, albeit marginally. Nevertheless, we expect the generally bearish sentiment in the broad market to persist,” analysts at Afrinvest stated in a note.

United Capital analysts are predicting that equity market investors may begin reacting to market fundamentals, such as the third quarter earnings of quoted companies as a measure of clarity has erupted in Nigeria’s political space with the emergence of Abubakar Atiku and Mohammadu Buhari as the two main presiden- tial candidates ahead of the 2019 election.

The analysts Friday noted, “the lingering conception about markets is that “profits drive prices.” Yet, the Q2-18 earnings season turned this truth on its head; despite earnings growth of more than 3 percent, market performance was largely underwhelming as investors had more on their minds than just bottom-line profits.

Also citing strong US dollar and rising US interest rates which shifted the direction of global appetite for risk, and rising political uncertainties, they expect market sentiment to start reverting to fundamentals amidst existing structural weaknesses such as heavy financing and operating costs boggling fast moving consumer goods, while downstream companies face capped margins. “There is also the case of rising bond yields in the US (benchmark 10-year Treasury yield recently touched a 7-year high). Again, Investors’ would have a lot to deal with than just bottom-line profits.”

Indeed, the flip-flop performance of the market was evident last week as the benchmark index advanced on three of five trading days.

The NSE ASI opened the week in the green, appreciating 0.2 percent on Monday, before declining by 0.1 percent on Tuesday and Wednesday respectively as investors took profit in previous gainers.

However, the bearish run was halted on Thursday as the ASI increased 0.1 percent and this was sustained till Friday (+0.1%).

Consequently, the NSE All-Share Index advanced 0.2 percent w-o-w to 32,456.98 points while year-to-date (YTD) loss improved to –15.1 percent. Similarly, market capitalisation rose N27.0 billion to settle at N11.8 trillion. Activity level strengthened as average volume and value traded rose 14.5 percent and 0.3 percent to settle at 182.9 million units and N2.0 billion respectively.

The top traded stocks by volume were ROYALEX (233.5m units), GUARANTY (94.7m units) and FCMB (77.0m units) while GUARANTY (N3.5bn), NESTLE (N698.1m) and DANGCEM (N683.3m) were the top traded stocks by value.

Performance across sectors was mixed this week as two indices advanced while three declined. The banking index improved the most, up 0.8 percent w-o-w as investors took position in ZENITH (+3.0%) and GUARANTY (+0.3%) while the industrial goods index gained 0.3 percent w-o-w.

On the flipside, the insurance index depreciated the most, falling 1.7 percent wo-w as profit taking in MANSARD (-7.7%) dragged the index. Similarly, the Oil & Gas (-0.9%) and Consumer Goods (-0.7%) indices declined following losses in OANDO (-2.9%) and NIGERIAN BREWERIES (-1.9%) respectively.

Investor sentiment softened in the week as market breadth (gainers/losers’ ratio), reduced to 0.8x from 0.9x in the prior week as 29 stocks advanced while 37 declined.

The best performing stocks for the week were WEMA (+17.9%), CAP (+16.0%) and MBENEFIT (+11.5%) while FIRSTALUM (-21.4%), CUTIX (-17.5%) and JOHNHOLT (-17.0%) were the worst performing stocks.