Closing 2018: Equities Performance Inconsistent as Turnover Gains 2.3%

During the year 2018, the Kenyan equities market generally set a falling trend where NASI, NSE 25 and NSE 20 registered declines. The three dropped by 18.0, 17.1 and 23.7 percent, respectively.

Since the peak in February 2015, NASI and NSE 20 are down 20.9 and 48.4 percent, respectively. The only large-cap gainer during the year was Barclays Bank, which gained 14.1 percent.

The largest losers, on the other hand, were East Africa Breweries (EABL), Bamburi Cement, Diamond Trust Bank (DTB), NIC Group and Safaricom, which lost 26.6, 26.4, 18.5, 17.6 and 17.0 percent, respectively.

Following the sustained price declines, the market valuation declined to below its historical average with NASI P/E currently at 11.6x compared to the historical average of 13.4x.

Equity turnover during the year rose by 2.3 percent to 1,723.8 million US Dollars from 1,684.4 million dollars in FY’2017.

Foreign investors remained net sellers with a net outflow of 288.8 million dollars, a 146.6 percent increase compared to net outflows of 113.7 million recorded in FY’2017.

The foreign investor outflows during the year were largely due to negative investor sentiment, as international investors exited the broader emerging markets due to the rising US interest rates, improved corporate performance in the US, and the strengthening US Dollar.

The year also saw 8 companies issue profit warnings to investors, compared to 12 companies that issued profit warnings in 2017. The companies cited the relatively tougher operating environment, which affected the top-line revenue, leading to rising inefficiencies, and consequently declining net income.

However, Cytonn Investments notes that 4 of the companies that issued profit warnings in 2018 also issued in 2017, suggesting their poor run in performance is due to specific company business models as opposed to the operating environment.