January Sees Equities on an Upward Trend, How Will February Be?

During the month of January, the equities market was an upward trend with the NSE 20, NASI and NSE 25 all gaining by 4.4, 7.1 and 9.1 percent respectively.

The performance recorded during the month was driven by large-cap stocks with EABL leading with month-on-month gains of 21.9 percent.

There were gains in the banking sector which saw NIC Group, Equity Group, Co-operative Bank, KCB Group and Barclays Bank all gaining by 21.4, 17.4, 12.6, 8.7, and 5.5 percent respectively.

Equities Turnover

Equities turnover increased by 85.5 percent during the month to USD 149.4 million, from USD 80.7 million in December 2018.

Foreign investors remained net sellers for the month, with a net selling position of USD 13.4 million, which is a 15.7 percent decrease from December’s net selling position of USD 15.9 million.

Performance of Equities during the Week

During the week, equities turnover increased by 83.3 percent to USD 60.3 million from USD 32.9 million the previous week, bringing the year to date (YTD) turnover to USD 157.0 million.

Foreign investors remained net sellers for the week, with a net selling position of USD 7.6 million, which is 2298.9 percent increase from last week’s net selling position of USD 0.3 million.

The Market in Focus

The market is currently trading at a price to earnings ratio (P/E) of 10.3x, 30.2 percent below the historical average of 13.4x, and a dividend yield of 4.7 percent above the historical average of 3.8 percent.

With the market trading at valuations below the historical average, analysts believe there is value in the market.

The current P/E valuation of 10.3x is 6.0 percent above the most recent trough valuation of 9.7x experienced in the first week of February 2017, and 23.7 percent above the previous trough valuation of 8.3x experienced in December 2011.

Secondary Turnover

Secondary market turnover ticked up 66 percent w/w last week which was buoyed by the improved liquidity conditions in the market.

This week’s focus shifts to the re-opened January primary bonds with the sale period closing out tomorrow and we anticipate yields to average 10.50 – 10.65 percent on the 2-year tenor and 12.70 -12.80 percent on the 15-year tenor.

“We expect the high liquidity condition to support the secondary market although it remains skewed against the small-sized banks,” said analysts from Genghis Capital.

This was reflected by the jump in average inter-bank rate last week (from 3.22% to 4.75%) on record thin weekly volume (KES 12.05Bn).

From the external front, we expect the dollar to steady on the back of better-than-expected January US non-farm payroll data which was offset by marginal hourly wage earning growth.

On balance, the latest US labor data is likely to moderate dollar strength which we expect to remain range-bound against KES in the week.

The Week Ahead

Friday’s trading session recorded lower turnover compared to Thursday’s session with sustained trading on NIC as expected following the release of further information on the CBA-NIC merger on Thursday.

“We noted an uptick in Safaricom’s price in the session, pushing the counter to close 6.92% higher than the previous day’s session,” added Genghis Capital.

Interest in the Telco emanated from the local investors with foreign investors recording net selling activity on the counter.

In today’s session, analysts expect activity to remain on the index counters with foreign investors dominating the market as they persist an overall selling sentiment.