Kenyan markets attractive for investors with long-term view – Cytonn

The Kenyan equity market, for any investor with a medium to long-term view, is attractive according to Cytonn Investments.

Cytonn Investments, an alternative investment management and real estate company, in Kenya with offices in the US says, “They maintain a  Neutral recommendation on equities for investors with short-term investment horizon since, despite the lower earnings growth prospects for this year, the market has rallied and brought the market P/E closer to its’ historical average.”

However “Pockets of value exist, with a number of undervalued sectors like Financial Services, which provide an attractive entry point for long-term investors and thus we are positive for investors with a long-term investment horizon,” they note.

Using three equities market indicators  – macroeconomic environment, corporate earnings growth and valuations and investor sentiment and security have a current view of neutral, neutral with a bias to positive and neutral respectively.

Cytonn projects the country’s GDP growth to recover the remaining part of 2017, from the depressed 4.7 percent experienced in Q1’2017, and come in at 4.7 percent – 5.2 percent, following the long rains between March and May, albeit depressed, which has served to ease the food shortage in the country. “Key risk lies in the subdued private sector credit growth, that came in at 1.6 percent in August, from 2.1 percent in May, and this trend may well impact adversely on economic growth,” they note in their Cytonn Monthly – October 2017 markets review.

Edwin Dande, the Managing Partner and Chief Executive Officer at Cytonn Investments Management Ltd, says the medium to long-term prospects the markets still look very attractive for any investor.

Dande gives the following reasons in an exclusive interview with him during the firm’s’ open day for The Alma, a comprehensive residential development in Ruaka.

“In the short term, because we have had a long electioneering period, and hopefully it is over and could possibly still continue because there is a possibility of a petition in the Supreme Court.

In the short term, we have had bumps all across the economy.

However, capital investments, business does not like uncertainty. When there is uncertainty people hold back on spending and hold back on investments. When they do that then, obviously any market participant is not going to do well.

In the short term that is why you are seeing real estate sales, real estate prices, employment and business have slowed down.

However, in the long term, the fundamentals are intact. If you look at macroeconomic stability, our currency has been very stable. The currency depreciation for the year is less than 2 percent, inflation is coming down the interest rates are stable so the macroeconomic stability is sound.

The demographics, population growth is still there, urbanisation is still there, ease of doing business is positive –Kenya improved on the Ease of Doing Business Ranking, rising 12 places to position 80 from position 92 in 2017, out of 190 countries-, governance is improving regardless of our issues which we still have a way of sorting them out.

So, the medium to long-term prospects is still very good.”

On the other hand, 6 out of 7 macroeconomic indicators Cytonn Investments analysed (Government Borrowing, Monetary Policy, Inflation, Exchange Rates, Investor Sentiments, Politics, and Security) are neutral pointing towards a stable outlook.

Only, revenue collection and exchange rates remain negative and negative to neutral.

“Hence our view that investors should be biased towards short-to medium-term fixed income instruments to reduce duration risk. Rates in the fixed income market have remained stable, and we expect this to continue in the short-term,” they observe.

“However, a budget deficit that is likely to result from depressed revenue collection creates uncertainty in the interest rates environment as any additional borrowing in the domestic market to plug the deficit could lead to upward pressures on interest rates.”