Equities Stagger Through July, How Will August Be?

By Virginia Mwangi

July saw the equities market record a mixed performance, NASI and NSE 25 declined by 2.2 percent and 0.6 percent respectively.

NSE 20 gained by 0.3 percent taking their YTD performance as at the end of July to 0.4 percent, 11.2 percent and 3.4  for NASI, NSE 20 and NSE 25, respectively.

The equities market performance during the month was shaped by gains in large caps such as BAT, Equity Group, Standard Chartered and EABL of 3.8, 3.3, 2.5 and 2.3 percent, respectively, which were offset by declines in other large caps such as NIC Group, Safaricom, Bamburi and Co-operative bank at 2.8, 4.3, 2.2 and 3.1 percent.

The equities market was on a downward trend, during the week, with NASI, NSE 20 and NSE 25 declining by 0.8, 0.3 and 0.8 percent, respectively, and declines in large-cap stocks such as Safaricom, Standard Chartered Bank and Equity Group, which declined by 3.4, 2.0 and 1.5 percent, respectively.

Equities turnover declined by 29.8 percent during the month going down from USD 137.7 million to USD 96.7 million in June, taking the YTD turnover to USD 1.2 bn.

Foreign investors remained net sellers during July with excitement among investors who exited the market at the favorable valuation, with possible re-entry at cheaper valuations in the future.

The market is currently trading at a price to earnings ratio (P/E) of 14.2x, 5.2 percent above the historical average of 13.5x, and a dividend yield of 3.8 percent, a little bit above the historical average of 3.7 percent.

However, despite the valuations nearing the historical average, there still exist pockets of value in the market. The current P/E valuation of 14.2x is 46.4 percent above the most recent trough valuation of 9.7x experienced in the first week of February 2017, and 71.1 percent above the previous trough valuation of 8.3x experienced in December 2011.