The Equity Market Dips During The Week With Declines in Large Counters

Last week saw the equities market was on a downward trend, with NASI, NSE 20 and NSE 25 declining by 0.9, 1.2 and 1.4 percent respectively.

The downward performance took the YTD performance of NASI, NSE 20 and NSE 25 to 1.0 percent, (11.2 percent) and 1.6 percent for NASI, NSE 20 and NSE 25 respectively.

Lasts week’s performance was driven by declines in most of the large-cap counters; with NIC Group, EABL, KCB Group, Co-operative Bank and Barclays Bank declining by 5.8, 3.3, 3.0, 2.9 and 2.1 percent respectively.

For the last twelve months (LTM), NASI has gained 2.5 percent while NSE 20 and NSE 25 have declined by 18.7 percent and 0.5 percent respectively.

Equities turnover decreased by 35.9 percent this week to USD 17.3 million from USD 26.9 million the previous week, with foreign investors dominating the market with a net selling position.

On a YTD basis, foreign investors have remained net sellers, recording a net outflow of USD 195.2 million as they exit the market at relatively expensive valuations so as to realize capital gains earned from the bullish rally witnessed from Q2’2017 to March 2018, for possible re-entry at cheaper valuations.

According to Cytonn Investments, the market is set 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 13.8x, which is 2.2 percent above the historical average of 13.5x, and a dividend yield of 3.9 percent, which is higher than the historical average of 3.7 percent.

The current P/E valuation of 13.8x is 40.8 percent above the most recent trough valuation of 9.8x experienced in the first week of February 2017, and 66.3 percent above the previous trough valuation of 8.3x experienced in December 2011.