Equities: Analyst optimistic about December rally despite 4.8% loss in November

IN spite of a 4.8 percent decline in the overall value of the equities market recorded in the month of November, investment analyst have expressed optimism on the month ahead, saying the Nigerian equity market could get a Christmas rally in December.

According to an investment report by United Capital titled ‘is a Santa Claus rally imminent’ the analysts noted that history shows “the All Share Index has averaged a return of 2.8 percent in the final month of the year since 1998 – second only to May which has averaged 5.3 percent.”

“Also, in the past 21 years, the market has only seen four negative monthly returns in December (specifically in 2001, 2005, 2008, 2009) – the lowest of any other month. Thus, the probability that there would be a December rally is a whopping 81.0 percent,” their report stated.

They noted that December is a month where players begin to trade their optimism about the new year. “It is also a month where portfolio managers looking to re-balance their portfolios take position ahead of year-end reporting.

Added to this, the market clearly looks attractively valued in light of the sell-off we have seen this year. This clearly offers an interesting entry-point ahead of the upcoming presidential elections and even to a multi-year recovery story,” they said.

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Meanwhile, a 19.3 percent year-to-date loss of the Nigeria equities market ranks it the fifth worst performing market in the world, behind the Nairobi Stock Exchange in Kenya which topped the list with -25.09 percent year-to-date returns  as at end of November, according to a report by analysts at Invest data Limited.

A review of the market activities for the week ended 30 November, 2018 indicates the All Share Index posted losses on 4 of the 5 trading sessions in the week, falling 2.5 percent week-on-week to settle at 30,874.17 points. Likewise, while market capitalisation shed N240.6 billion last week to close at N11.3 trillion.

Similarly, trading activity weakened as average volume and value traded decreased by 25.2 percent and 50.6 percent week-on-week to 239.7 million units and N2.9 billion respectively.

The top traded stocks by volume were Access Bank (159.8m units), Universal Insurance (150.1m units) and Diamond Bank (70.0m units) while Stanbic (N2.2bn) , Nigerian Breweries (N1.2bn) and Nestle (N1.2bn) topped trades by value.

The week started off on a negative note as the ASI dipped 0.3 percent due to sell offs in market bellwethers;Dangote Cement, Nigerian Breweries and Guaranty Trust Bank.

The negative performance was sustained for  3 consecutive  sessions,  declining 1.3 percent, 0.5 percent and 1.3 percent on Tuesday, Wednesday and Thursday respectively but upturned on Friday with the ASI rising 0.9 percent, largely due to gains in Dangote Cement and Nigerian Breweries. They advanced by 1 and 4 percent respectively.

In the week under review performance across the sectors closed bearish with 2 of 5 major indices that advanced while 3 declined. The insurance index gained the most, up 4.7 percent last week due to sustained buy interest in Continental Re-insurance (+6.4%). The consumer goods index rose 0.1 percent due to bargain hunting in Nestle (+1.4%) and International Breweries (+1.8%).

On the flip side, the oil & gas index shed the most, down 5.1 percent last week due to sell pressures in Seplat (-9.7%) and Oando (-2.1%). Similarly, the industrial goods and banking indices declined, down 3.4 percent and 3.0 percent week-on-week respectively due to price depreciation in Dangote Cement (-4.2%), Guaranty Trust Bank (-5.6%) and Zenith (-3.3%).

Investor sentiment was weak last week, as market breadth (advance/decline ratio) decreased to 0.6x, from 1.2x in the previous week, following 23 stocks that advanced against 39 that declined.

The best performing stocks for the week were Continental Re-insurance (+33.3%), Beta Glass (+10.0%) and Cutix Plc (+9.6%) while Diamond Bank (-31.6%), Unity (-18.8%) and ABC Transport (-12.9%) were the worst performing stocks.

Following four days of losses in the week,  Afrinvest analysts reiterate a session of bargain hunting in early trades this week.