Q4’17: Equities Outlook Appear Hazy But With A Strong Start * 16 11 2017

All through last month the Nigerian equities market has been trading on sideways since bargain hunting and profit takings seized investors sentiment after a long period of bullish run.nationalgeographic.comyohaig.ng The feelings in the market is that of speculative positioning to year end. But the market still has third quarter (Q3 ’17) results to bet on. The results are expected to begin rolling in by next week. Thus this week may witness an upside of the bargain hunting. However, most traders are of the view that aside the Q3’17 expectations, their seems to be no new drivers of positive sentiment in the immediate term. Thus the Q3’17 expectations may be short-lived. However, a mixed bag of macroeconomic expectations and happenings still hold much significance in the direction of the market to end of the year. The expectations include further growth in real gross domestic product, GDP, for Q3’17 expected to be announced late November, fiscal plans and actions including 2017 budgetory performances and 2018 estimates, the last Central Bank of Nigeria’s Monetary Policy Committee meeting outcome expected late November also. All these are expected to drive market sentiments in the fourth quarter of this year. Q4 week one signals positive Meanwhile the Q4’17 first trading week showed a strong start though the first trading day was negative. Sentiment on the Nigerian Bourse in the first week of the quarter (last week) was broadly positive as the All Share Index gained on 3 of 4 sessions to close at 36,320.98 points, indicating a 2.5% gain week-on-week (W-o-W) and a year-to-date (YTD) return of 35.1%. In turn, market capitalization increased by N285.3bn to settle at N12.5tn. Investor sentiment as measured by market breadth was positive week, improving on previous week’s 1.1x to close at 1.6x on account of 34 stocks gaining against 23 stocks declining. Coming from the cold August-Sept The Q3’17 performance was marred by the lack-luster sentiments of August and September. The Nigerian equities market closed lower in both months after a substantial gain in July.gov.ukyohaig.ng The loss reduced the year-to-date (YtD) return to 31.87%. While the oil & gas sector remained the largest drag on market performance, the month witnessed renewed sell-offs in the consumer and industrial goods sectors - exacerbated by profit taking in the shares of Flour Mills of Nigeria Plc, FMN (-8.45%) and WAPCO Plc (-11.06%) - the cumulative impact of which more than outweighed the gains in the banking and insurance sectors. Reflecting the lull in the market, the average daily volume and value of trades declined by 31.85% and 60.21% to 221 million shares and N3.43 billion respectively. Analysts at Cordros Capital Limited, a Lagos based investment house, attributed the poor performance to the absence of any fundamental news in the market, adding that the sizeable gains YtD left some legroom for profit taking. Foreign investors’ confidence But the Foreign Portfolio Investment (FPI) report for August shows that investors’ participation in Nigerian bourse rebounded significantly. Total FPI transactions increased by 244% to N208.34 billion from N60.50 billion recorded in the previous month, reflecting improving confidence, a development market analysts attributed to the sustained positive actions of the CBN in its foreign exchange measures. Foreign inflow during the month was at a high of N165.47 billion (from N38.44 billion in July), compared to outflow of N42.87 billion, resulting in net inflow of N122.60 billion (compared to N16.38 billion in July). Consequently, foreign investors’ share of total equity trading in the local market increased to 52%, overtaking the locals for the first time since June 2016. The same report shows that institutional investors accounted for 79.3% of total local trades, from 60% in July. The negative performance for the review month occurred notwithstanding the improving macro environment, as shown by the September 2017 PMI data, signaling that both manufacturing and non-manufacturing activities expanded for the sixth and fifth consecutive months respectively, to 55.3 and 54.9. Statistics, however, showed that the Nigerian Stock Market was overwhelmed by sell-offs, with 47 stocks recording price declines, from 46 in August while 26 recorded price gains, from 35 the month before. Decline was high among lowcap stocks, with the shares of Neimeth Pharmaceuticals Plc (-21.84%), Morison Industries Plc (-19.51%), and Enamelware Manufacturing Plc (- 16.65%) leading the pack. Most sector indices closed lower, except the Insurance (+1.59%) and Banking indices (+0.11%) - which benefitted from bargain hunting in the shares of Linkage Assurance Plc (2.99%), Mansard Insurance Plc (2.56%), Continental Insurance Plc (2.04%), Stanbic IBTC Bank Plc (3.21%), Guaranty Trust Bank, GTB, Plc (2.07%), and Zenith Bank Plc (1.74%) respectively. On the flip side, the negative investor sentiment in the Oil and Gas sector persisted, with the index losing 6.05%, on the back of sell-offs in the shares of Oando Plc (- 12.92%), Seplat Petroleum Plc (-8.24%), and MRS Oil Plc (-4.99%). In the same vein, the Industrial Goods (-3.30%) and Consumer Goods (-2.65%) indices recorded negative returns, as investors took profit in WAPCO (-11.06%), Beta Glass Plc (-5.00%), FMN (-8.45%), and NB (-8.35%), respectively  Total volume traded contracted by 43.70% to 4.21 billion shares (previously 7.48 billion), with GTB Access Bank Plc and Zenith accounting for 28.78% of total volume traded. Total value also dipped by 67.13% to N65.23 billion (previously N198.49 billion), with GTB, Nestle Nigeria Plc, and Zenith accounting for 53.88% of total value. Looking ahead, the analysts at Cordros Capital stated: "Fundamentally, we believe the market remains strong, with the outlook for the economy and corporate earnings in Q3-17 and FY-17 broadly bullish.