The Markets: Equities Post Mixed Performances As Turnover Ups to USD 20.4 Million

Last week, the equities market recorded mixed performance, with NASI, and NSE 25 gaining 0.6 percent and 1.3 percent respectively.

The NSE 20 declined by 0.6 percent taking their YTD performance to 0.7 percent, (10.7 percent) and 4.3 percent for NASI, NSE 20 and NSE 25 respectively.

This week’s performance was driven by marginal gains in large-cap counters in the financial sector; with NIC Group, Diamond Trust Bank, Equity Group and Barclays gaining 0.7, 0.5, 0.5, and 0.4 percent respectively.

For the last twelve months (LTM), NASI, NSE 20 and NSE 25 have gained 11.7 percent (10.0 percent) and 8.7 percent respectively.

Equities turnover increased by 4.2 percent this week to USD 20.4 million from USD 19.6 million the previous week, with foreign investors dominating market activity during the week.

Analysts from Cytonn Investments Limited say that they expect the market to remain resilient this year supported by positive investor sentiment, as investors take advantage of the attractive stock valuations in select counters.

The market is currently trading at a price to earnings ratio (P/E) of 14.3x, which is 6.0 percent above the historical average of 13.5x, and a dividend yield of 3.8 percent which is higher than the historical average of 3.7 percent.

The current P/E valuation of 14.3x is 45.9 percent above the most recent trough valuation of 9.8x experienced in the first week of February 2017, and 72.3 percent above the previous trough valuation of 8.3x experienced in December 2011.

Fixed Income Rates

Rates in the fixed income market have been on a declining trend, as the government continues to reject expensive bids due to increased demand evidenced by the high subscription rates, attributable to improved liquidity, which saw the interbank rate decline to an average of 5.2 percent in H1’2018 compared to 7.2 percent recorded in H2’2017.

The government is however likely to remain behind its borrowing target for the better part of the first half of the 2018/19 financial year as per historical experience.

The 2018/19 budget gives a domestic borrowing target of 271.9 billion shillings, 8.6 percent lower than the 2017/2018 fiscal year’s target of 297.6 billion shillings, which may result in reduced pressure on domestic borrowing.

However, the National Treasury has proposed to repeal the interest rate cap, which if repealed can result in upward pressure on interest rates, as banks would resume pricing of loans to the private sector based on their risk profiles.