Equities Market on a Downward Trend #CytonnReport

By Soko Directory Team / Published June 20, 2016 | 6:42 am

During the week, the equities market was on a downward trend with NSE 20 and NSE 25 losing 1.3% and 0.5%, respectively, while NASI gained 0.3%, taking the YTD performance to -6.3%, -1.2% and 1.2%, respectively.

The downward trend was on the back of losses in large caps led by KCB and Barclays, which lost 3.5%, and 1.5%, respectively. Since the February 2015 peak, the market has been down 31.2% and 16.9% for NSE 20 and NASI, respectively.

Equities turnover fell by 30.0% during the week to KES 4.1 billion from KES 5.8 billion last week, on the back of reduced foreign investors’ activity despite being net buyers with net inflows of USD 2.3 million, compared to net inflows of USD 3.2 million witnessed the previous week.

We still expect earnings growth to improve in 2016 compared to 2015 supported by a favourable macroeconomic environment despite the negative start to the year. Given the low valuations, long-term investors should gradually be taking positions in the market.

The market is currently trading at a price to earnings ratio of 12.1x, versus a historical average of 13.8x, with a dividend yield of 4.5% versus a historical average of 3.4%. The charts below indicate the historical PE and dividend yields of the market.

In the other news, the Government of Kenya is ahead of its domestic borrowing schedule, having borrowed Kshs 368.2 billion for the current fiscal year compared to a target of Kshs 210.1 billion (assuming a pro-rated borrowing throughout the financial year of Kshs 219.2 billion budgeted for the full financial year).

With only two weeks left to the end of the current fiscal year, the government has surpassed its local borrowing target. The additional Kshs 158.2 billion above the target will go towards plugging the foreign borrowing deficit.

The government will look to shift their attention to achieve the foreign borrowing target and start front-loading for the next fiscal year. With interest rates still coming down, but showing signs of bottoming out at the current levels, we advise investors to lock in funds in short to medium term paper for tenors between six months and one year as the rates are attractive on a risk-adjusted basis.

About Soko Directory Team

Soko Directory is a Financial and Markets digital portal that tracks brands, listed firms on the NSE, SMEs and trend setters in the markets eco-system.Find us on Facebook: facebook.com/SokoDirectory and on Twitter: twitter.com/SokoDirectory

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