Equities On A Downward Trajectory For The Better Part Of May

During the month of May, the equities market was on a downward trajectory, with NASI, NSE 20, and NSE 25 declining by 1.8, 0.5, and 2.7 percent respectively.

The equities market performance during the month was driven by losses recorded by Diamond Trust Bank (DTBK), Standard Chartered Bank, Equity Group, and EABL, of 14.2 percent, 11.5, 6.4, and 6.2 percent respectively.

During the week, the market was on a downward trajectory, with both NASI and the NSE 25 declining by 2.3 percent, while the NSE 20 declined by 3.3 percent taking their YTD performance to losses of 17.6, 21.9, and 26.6 percent respectively.

The performance of the NASI was driven by losses recorded by large-cap stocks such as Standard Chartered Bank, Diamond Trust Bank (DTBK), Safaricom, Equity, and KCB of 4.2, 3.7, 2.7, 2.5, and 2.3 percent respectively.

Equities turnover increased by 15.3 percent during the month to USD 136.6 million from USD 118.5 million in April 2020.

During the month, foreign investors remained net sellers with a net selling position of USD 41.9 million compared to April’s net selling position of USD 36.4 million.

During the week, equities turnover declined by 1.7 percent to USD 22.2 million from USD 22.5 million recorded the previous week, taking the YTD turnover to USD 693.7 million.

Foreign investors remained net sellers during the week, with the net selling position increasing by 5.9 percent to USD 7.5 million from a net selling position of USD 7.1 million recorded the previous week.

The market is currently trading at a price to earnings ratio (P/E) of 8.1x, 38.5 percent below the historical average of 13.1x, and a dividend yield of 5.6 percent, 1.6 percentage points above the historical average of 4.0 percent.

“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 it out through the pandemic,” said Cytonn.

The current P/E valuation of 8.1x is 3.8 percent below the most recent trough valuation of 8.4x experienced in the last week of March 2020. The charts below indicate the historical P/E and dividend yields of the market.