During the month of August, the equities market took a dip with NASI, NSE 20 and NSE 25 declining by 1.7 percent, 2.8 percent and 3.2 percent, respectively, taking their YTD performance as at the end of August to 2.1 percent, 13.7 percent and 2.7 percent for NASI, NSE 20 and NSE 25, respectively.
The equities market performance during the month was driven by declines in large caps stocks such as East Africa Breweries Limited (EABL), Equity Group Holdings, Barclays Bank, Diamond Trust Bank (DTB) and KCB Group, which declined by 11.6 percent, 10.0 percent, 5.2 percent, 5.0 percent and 4.1 percent, respectively.
A downward trend was also realized during the week with NASI, NSE 20 and NSE 25 declining by 3.1 percent, 2.8 percent, and 4.2 percent, respectively. This was due to declines in counters such as Equity Group Holdings, Barclays Bank, and KCB Group, which declined by 10.0 percent, 6.4 percent and 6.3 percent, respectively.
Banking stocks declined to owe to investors’ reaction to Parliament’s vote to retain the 4.0 percent cap above the Central Bank Rate (CBR), on interests charged on loans.
During the month, the equities turnover rose by 30.7 percent during the month to 99.8 million US dollars from 76.3 million dollars in July, taking the YTD turnover to 1.2 billion US dollars.
For this week, equities turnover rose by 55.2 percent to 26.8 million US dollars from 17.3 million dollars in the previous week with foreign investors remaining net sellers.
Foreign investors remained net sellers for this month, with a net selling position of 15.3 million dollars. We expect the market to remain supported by improved investor sentiment as the economy recovers from shocks experienced last year.
The market is currently trading at a price to earnings ratio (P/E) of 13.9x, 3.0 percent above the historical average of 13.5x, and a dividend yield of 3.9 percent, slightly above the historical average of 3.7 percent.
Despite the valuations nearing the historical average, Cytonn believes there still exist pockets of value in the market. The current P/E valuation of 13.5x is 43.3 percent above the most recent trough valuation of 9.7x experienced in the first week of February 2017, and 67.5 percent above the previous trough valuation of 8.3x experienced in December 2011.