The market lost 199 basis points week-on-week and closed the week on Friday July 03, 2020 with a 16 basis points loss.
At the end of the trading session on Monday, the ASI was positive, a signal that the market was trying to leverage on the market’s direction determinants to change its course for the week, a display of optimism on the part of the portfolio managers in preparation to close the month and the quarter in the green zone. That move could not be sustained as it was possible only on Monday and Wednesday when Nestle gained 4.73% and BUA Cement gained 8.83% respectively to help the ASI uptick for both days.
Investors have not been enthusiastic about taking positions in the market, as they are baffled, puzzled, confused and full of uncertainty and conflicting news of an imminent recession and the recent jump in Purchasing Manager Index has left Nigerians unsure of what next to expect.
The market’s expectation of many issuers to report significantly weak numbers save for Telecoms, Logistics, Pharmaceuticals and Food focused companies has triggered a sell off that mounted pressure on the market and mostly banking stocks forcing Zenith to close 14.80 and Guaranty to close 20.70 on Thursday. Efforts were renewed on Friday to reverse those losses but the sell pressure subsists, which might spiral into the coming weeks.
Investors’ sentiment has further been soured by the recent MSCI review that placed Nigeria on a watch list due to foreign exchange illiquidity. This will whittle down the activities of index fund managers. The foreign portfolio investors are currently on their marks and on the border line waiting for the resumption of forex sale and could trigger another wave of strong sell-offs.
Zenith has recently slow down from 18.00 to 15.10 while Guaranty was from 25.00 to 20.75. The question is for those who didn’t make the move to exit at the top range of those prices should just be in the brace position and wait.
This weak sentiment in equities is broad-based as all sub-indices trended lower during the week, cutting across all boards from the ASI to NSE Industrial Goods Index.
The market is waiting to see the first set of Q2 financials that will be released into the market to gauge the effect of the covid-19 pandemic and draw inferences thereon.
If the effect is too damaging, the market will be forced to adjust and accept the new normal but on the flip side, the market will discountenance the pandemic and look forward to great and new things to ahead.
The ASI would further slowdown in the coming weeks, particularly if earnings results from major bellwethers companies proved underwhelming.
It is advised that short termers should trade with a bearish bias mindset. Nevertheless, for long term focused investment managers, the weakness in July may be short lived, they should take advantage of this panic and sell-offs to cherry pick quality names and fundamentally sound stocks on lower prices. This is premised on the low valuation of the Nigerian market, relative to emerging market peers as well as historical average.
The historic lockdown experienced in first half of 2020 has crippled demand and halted supply chains, for this, the equities markets path will remain gloomy, amid pressure on corporate earnings, concerns about the exchange rate and the second wave of the pandemic. Against this backdrop the market will remain highly volatile and short-term profit taking driven.
NSE Reveals Results of Full Year Review of Market Indices
The Nigerian Stock Exchange has announced the results of its half year market index review for its various indices.
The review has led to the entry and exit of some companies from some indices which took effect from Wednesday, July 1, 2020.
Julius Berger plc was used to replace Transnational Corporation Nigeria Plc (Transcorp) in the NSE 30 Index while Notore Chemical Ind. Plc Replaced Premier Paints Plc in the NSE Industrial Index.
For the NSE Lotus Islamic Index, Lafarge Africa Plc and Chemical And Allied Product Plc are coming into the place of 11 Plc (Mobil) and Nigerian Aviation Handling Company Plc.
Meristem Growth Index witnessed the exit of BUA Cement Plc, Custodian Insurance Plc, NAHCO Plc and Wema Bank Plc while GT Bank Plc and Julius Berger Plc are being added.
Berger Paints Plc Dangote Cement Plc, Eterna Oil Plc, ETI Plc and Wapic Insurance PLC are being substituted for Dangote Sugar Refinery Plc in the Mersitem value index.
Corporate Governance Index only witnessed new entrants VIZ
- Julius Berger Nigeria Plc
- MTN Nigeria Plc
- NEM Insurance Plc
- NPF Microfinance Bank Plc
- Royal Exchange Nigeria Plc
- Sunu Assurances Nig. Plc
The indices were developed to allow investors to follow market movements and properly manage investment portfolios. Designed using the market capitalization methodology, the indices are rebalanced on a semi-annual basis on the first business day in January and in July.