December Outlook: Shopping For Santa Claus, Year End Rally On NSE


Monday, December 10, 2018 8:00AM / Investdata Consulting


In recent times, global economic performance has turned positive, with a healthy pace of recovery judging by data emanating from the developed economies in the form of strong GDP numbers. This is however now being threatened by the ongoing trade war between China and the U.S in the midst of declining in commodity prices, especially crude oil.


These are compounded by the Brexit and others which remain veritable reasons for concern among investors and regardless of the signals such as the interest rates now being tightened which is capable of redirecting the flow funds to boost economic growth that would push stock markets up again after the recent correction gale.  


Back home, the possibility of the Nigerian stock market rebounding pre, or post the February 16 Presidential election is high, considering the recent oversubscription of the nation’s $2.5bn Eurobond, which is enhancing recently the gradual but steady upward movement in the nation’s external reserves. There is also expected year-end increase in portfolio repositioning ahead of 2019 where equity prices are low and undervalued.

Recent report from Bank of America shows that investors’ funds to emerging markets increased from 5% in October 2018 to 13% by November.


Expectedly, the biggest rebounds in global markets should be emerging markets, given that the MSCI composite index had suffered 27% fall from the January highs. The low sovereign debt and growth outlook in emerging markets will support a rebound and drive equity prices as the end of rate normalization is near and Treasury Yield has started looking down. The 10-year ends the week well off the highs of the past two months, and at the important 3% level.


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Due to year end expectations that triggered economic activities in the last two months of the quarter as reflected in the positive macro-economic data such as the November Purchasing Managers Index (PMI) released by the Central Bank of Nigeria (CBN). The index has further expanded to 57.9 points from 56.8 points in October, signaling recovery in the manufacturing sector. This data will be appreciated when considered against Q3 numbers from the sector were below market and analysts’ expectations. 

With one or two quarterly earnings expected in this month, as well as new trading patterns that will unfold due to seasonal changes, as investors and traders will likely reposition and balance their portfolios ahead of 2018 full year earnings in 2019. This is based on their interpretation of the scorecards and changes that will keep the market oscillating, looking at the low entry points and expected high Dividend Yield at the peak of earnings season in March 2019.


The Q3 numbers released shows the earnings position and health of the listed companies and indeed the market, while stocks that had suffered huge losses but have strong fundamental should be the target of investors and traders, given their high upside potentials. Such strong intrinsic values remain a plus and should guide investors to know where to look while seeking to invest profitably for the remaining days of the year and beyond.


Traders and investors who understand the importance of combining fundaments and technical analysis to make investment decisions in the stock market should take this opportunity of a prolonged pullback in prices to position in some sectors for short, medium- and long-term gains. Operators should search for such goldmines especially in sectors like banking, conglomerates, industrial goods, oil and consumer goods, after a carefully study of the recent price patterns and fundamental data available in the market.


What to expect in December 2018

  • Oil price oscillation to continue and to influence government revenue positively or negatively, depending on the outcome of this weekend’s meeting of the Organisation of Petroleum Exporting Countries (OPEC).
  • Improved liquidity should be envisaged in the market, especially with the Eurobond proceeds being used to finance Nigeria’s 2018 budget, besides electoral campaign spending that have already kicked off and is expected to flow into the market in form of portfolio investment that will support the market. 
  • Seasonal trending with few late filers of quarterly numbers expected, with much or no impact on the market, depending on the strength of the numbers. However, blue-chip companies will continue to oscillate on the strength of company and market fundamentals as repositioning and rebalancing stays till year-end.
  • The oscillating trend of equity prices as a result of portfolio repositioning along the line of positive numbers by foreign and local investors that will boost activities in this last month of the year.
  • Market outlook for the new month remains mixed as few quarterly and one full year earnings are expected. The return of positive sentiments and strong momentum may not be ruled out as the market expects the improving economic activities to be sustained with the last-minute implementation of the 2018 budget. This will be if government shows interest again in the economy, instead of the current situation where all attention is on politics and 2019 elections.  
  • The relative low Price-to-Earnings ratio in the market may further attract demand for stocks. However, all must however invest wisely using technical and fundamental analysis when taking decisions.
  • Managing risk and protecting capital at this point is very important, so you will be able to determine when to buy or sell, by watching the stocks and the market, using technical analysis. 
  • Let numbers released by companies guide your decision and timing how long to stay in that position.
  • Know the categories of stocks that will rally after the presidential election.


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