Equities on Upward Trend As Uhuru Rejects the Interest Rate Cap

During the past week, the equities market was on an upward trend with NASI, NSE 20 and NSE 25 gaining by 0.5, 0.2 and 1.5 percent, respectively.

The performance in equities took their Year To Date (YTD) performance to gains/losses of 5.6 percent, (13.2 percent) and (0.1 percent), for NASI, NSE 20 and NSE 25, respectively.

According to analysts from Cytonn Investments, the performance in NASI was driven by gains recorded by stocks in the Banking sector with NIC Group, I&M Holdings, Equity Group and KCB Group recording gains of 10.2 percent, 6.3 percent, 5.3 percent and 3.5 percent, respectively.

This market performance was in reaction to the news of President Uhuru’s refusal to assent to the Finance Bill 2019 in an attempt to repeal the interest rate cap.

Equities turnover increased by 157.1 percent during the week to USD 34.4 million, from USD 13.4 million the previous week, taking the YTD turnover to USD 1,132.0 million.

Foreign investors remained net sellers for the week, with a net selling position of USD 8.5 million, from a net selling position of USD 0.4 million the previous week.

The market is currently trading at a price to earnings ratio (P/E) of 11.3x, 15.3 percent below the historical average of 13.3x, and a dividend yield of 6.0 percent above the historical average of 3.9 percent.

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

The current P/E valuation of 11.3x is 16.0 percent above the most recent trough valuation of 9.7x experienced in the first week of February 2017, and 35.5 percent above the previous trough valuation of 8.3x experienced in December 2011.

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