September 06, 2010 2569 VIEWS
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ISSN 1597 - 8842 Vol. 1 No. 44
 
Executive Summary
 
 
“Today is 120 days to the end of the year 2010… I wished it was 120 minutes – so we can get this year over and done with”,
 
The equity market trend in the month of August reflected the confidence levels and sentiments pervading the market at this time; with the ASI opening the month at 25,634.39 points and resting on month end at 24,268.24. The stock market reversed the positive gains recorded in the preceding month and ended up  at its 5-month low.
 
 
Trends in the month showed that the All Share index of the Nigeria Stock Exchange (NSE ASI) struggled through on the support point it located at the end of H1 2010.
 
The dominance of bears in the period was not unconnected with the spill over effect of the preceding three months below average performance. A number of reasons can be adduced for the volatility and consequently, dominance of bearish trend during the period that equally created room money making through the adoption of a ‘touch and go’ investment strategy adopted by some discerning investors.
 
According to data from the NSE, the robust liquidity position in the money market did not impact on the stock market, hence, stock prices dropped on reduced volume of transactions. Though, the sell offs were not massive, banks tried to comply with the apex bank directive to reduce their exposure to the capital market to 10 per cent by September 1, 2010.
 
The market recorded a turnover of 5.3bn shares valued at N46.91bn in 142,594 deals during August in contrast to a total of 7.64bn shares valued at N58.8bn exchanged during July in 134,220 deals.
 
Consequently, trading volume and value dropped by 31.1% and 20.2%, respectively, while the number of executed trades (deals) rose by 6.2%. August trading volumes increased by 7.5% while trading value and number of trades dropped by 3.2% and 22.4% respectively. Trading days in August were 22 days, same as in July.
 
Trading during the month included 2,000 units of Lagos State Fixed Rate Redeemable Bond valued at N2.255 million traded in 2 deals. There were no transactions through the stock market on the Federal Government Development Stocks, Industrial Loans and Preference Stocks sectors.
 
While the on-going reforms in the financial services sector and the re-emergence of the regulatory pre-eminence continues and creates dislocations, which may be contributory to the challenges faced in the market but is not the cause.
 
Recall that following series of allegations of financial impropriety against the leadership of the NSE and the public exposure it generated, the Security and Exchange Commission (SEC) stepped in on August 5th, 2010 by removing the erstwhile Director General of the bourse with the entire council dissolved (http://www.proshareng.com/news/11652).
 
It is however worth noting that since the SEC took the step on the 5th of the month, market outlook has not remained the same to date as investors continued to respond and react to the development; closer watch of the market trend prior to the saga would suggest that following the sustained three days of decline to August 3rd, 2010, the market was upbeat by +1.07% recorded at the close of trading session on Wednesday 4th August 2010 would continue.
 
However, this could not be sustained as market performance trend assumed a decline with marginal appreciations by 0.09% recorded in each of 5th and 6th day of August. The declines consequently climaxed in negative outlook which set in at the close of trading session of Monday 9th August, 2010 and lasted till the last trading day of the week. This consequently brought the week’s performance to -2.96%.
 
The pre and post intervention analysis of the market trend showed that, between July 16th and August 4th, 2010 (covering fifteen trading days), market recorded upbeat by +3.79% with average daily appreciations by +0.27%.
 
The breakdown of analysis by NSE sectoral indexes in the fifteen trading days prior to the intervention by SEC and fifteen trading days after the interventions as contained in the table below and reveals the market pulse for the period; blue chips contributed much more to the upbeat recorded in the pre-intervention fifteen trading days as revealed in the table, while Oil and gas stocks shed off weight massively.
 
The banking stocks were the hardest hit by the bearish run recorded in the post SEC intervention period, followed by the blue chip stocks. 
 
 
Many players in the market have resorted to increased speculative activities, an indication that investors’ confidence remains weak and fragile in the market at this time and their appetite for risk is in need of a major bolt.
 
A number of developments arising from the month will impact events in the new month, some of which are:
*       The take-off of AMCON (the uncertainty of which appears not helpful) and though not mutually dependent, the common sense resolution of the reality post the Sept 1, 2010 mandate to banks in respect of margin loans;
*       The planned new listings announced by the NSE and the planned Listing/Merger of the Dangote Cement Group understood to have been treated by the Quotations Committee and with an estimated valuation of N2 trillion. This should impact the market capitalisation and serve as an encouragement for attracting telecom and energy sector firms to the exchange.   
*       How the NSE handles and deal with the report  that three foreign conglomerates were concluding arrangements for self delisting from the exchange (http://www.proshareng.com/news/11824).
*       The planned sale of banks or/and its handover to the NDIC option.
*       Activities in the money and debt market.
*       The outstanding issues with Unity Bank Plc and Wema Bank Plc.
*       The management of the exchange and regulatory interventions that are anticipated.
 
Conclusion
 
The developments so far will appear to have negated our positive outlook forecast for the market in Q3 2010 as contained in our half year NCM report (http://www.proshareng.com/articles/2753) and July monthly report (http://proshareng.com/reports/2823).
 
The market pattern in the latter part of the month continue to show signs of strain and evidence of persistence of volatility in the market; the two days upbeat of Thursday 26th and Friday 27th of the month notwithstanding. This in itself could not be sustained as the market consequently turned south by -0.22% at the close of Monday, penultimate trading day, an indicator that the market remains technically weak.
 
We however remain cautiously optimistic that Q3 2010 should deliver a positive close as we enter the run-in to year end; barring any unforeseen escalation of the current challenges.
 
Thank you for reading and do take time to share with analyst@proshareng.com on your thoughts. We value your feedback and comments.
 
 
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