Equities Market Sustains a Substantial Downward Trend for the 2018 3rd Quarter

During Q3’2018, the equities market was on a significant downward trend, with NASI, NSE 25 and NSE 20 declining by 14.2, 15.6, and 12.5 percent respectively; taking their YTD performance as at the end of September to (12.6 percent), (22.5 percent), and (13.6 percent) for NASI, NSE 20 and NSE 25, respectively.

The equities market performance during the quarter was shaped by declines in large caps such as NIC Group, Bamburi, Safaricom, and EABL by 31.0, 18.5, 16.2, and 13.6 percent respectively.

Last week, the equities market was on an upward trend with NASI, NSE 20 and NSE 25 gaining by 2.9, 1.5, and 2.7 percent respectively, due to gains in large-cap stocks such as Co-operative Bank, EABL and KCB which gained by 9.4, 5.6, and 5.3 percent respectively.

For the last twelve months (LTM), NASI, NSE 20 and NSE 25 have declined by 8.4, 22.6, and 10.5 percent respectively.

Equities turnover declined by 32.0 percent during the quarter to 319.5 million US dollars from 469.8 million dollars in June, taking the YTD turnover to 1.4 billion. For the week, equities turnover rose by 50.5 percent to 41.0 million dollars from 27.2 million dollars in the previous week.

Foreign investors remained net sellers this week, with a net selling position of 12.0 million, which is a 48.1 percent increase from last week’s net selling position of 8.1 million.

According to Cytonn, the market is expected to remain subdued in the near-term as international investors exit the broader emerging markets due to the rising interest rates in the US, coupled with strengthening US dollar.

The market is currently trading at a price to earnings ratio (P/E) of 12.1x, 10.1 percent below the historical average of 13.5x, and a dividend yield of 4.8 percent, slightly above the historical average of 3.7 percent.

Despite the current valuations being around the historical average, there still exist pockets of value in the market. The current P/E valuation of 12.1x is 24.7 percent above the most recent trough valuation of 9.7x experienced in the first week of February 2017, and 45.6 percent above the previous trough valuation of 8.3x experienced in December 2011.