Equities Market Record Mixed Reaction As The Week Snailed On

During the week, the equities market recorded mixed performances, with NASI and NSE 25 gaining by 1.2 and 1.4 percent respectively, while NSE 20 declined by 2.1 percent.

The performance during the week took their YTD performance to losses of 13.1, 18.7, and 25.8 percent, for NASI, NSE 25, and NSE 20, respectively.

The YTD loss recorded by NSE 20 breaches the threshold of a bear market, which is a condition in which securities prices fall by 20.0 percent or more.

The NASI performance was driven by gains recorded by large-cap stocks such as EABL, KCB Group, Equity Group, Cooperative Bank and Safaricom, which gained by 3.9, 3.3, 2.9, 2.0, and 1.5 percent respectively.

The gains were however weighed down by losses recorded by other large-cap stocks such as Bamburi, Diamond Trust Bank (DTBK), and Standard Chartered Bank of 10.5, 2.9, and 1.5 percent respectively.

Equities turnover declined by 3.3 percent during the week to USD 30.3 mn, from USD 31.3 mn recorded the previous week, taking the YTD turnover to USD 777.0 mn.

Foreign investors turned net sellers during the week, with a net selling position of USD 0.5 mn, from a net buying position of USD 4.7 mn recorded the previous week, taking the YTD net selling position to USD 201.4 mn.

The market is currently trading at a price to earnings ratio (P/E) of 8.6x, 34.5% below the historical average of 13.1x. The average dividend yield is currently at 4.9 percent, a decline from the 5.1 percent recorded the previous week, but 0.9 percentage points above the historical average of 4.0 percent.

The decline of the dividend yield is mainly attributable to the price gains recorded by most stocks during the week. With the market trading at valuations below the historical average, we believe there are pockets of value in the market for investors with higher risk tolerance and are willing to wait out the pandemic.

The current P/E valuation of 8.6x is 6.8 percent above the most recent valuation trough of 8.0x experienced in the last week of May 2020. The charts below indicate the historical P/E and dividend yields of the market.

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