Equities Turnover Down By 14 Percent As Markets File A Downward Trend

During the week, the equities market was on a downward trajectory, with NASI, NSE 20, and NSE 25 recording declines of 4.7, 1.6, and 3.0 percent respectively.

The performance of the three during the week took their YTD performance to losses of 17.2, 27.0, and 21.2 percent, for NASI, NSE 20, and NSE 25, respectively.

The NASI performance was driven by losses recorded by large-cap stocks such as Bamburi, Safaricom, EABL, Equity Group, and NCBA, which lost by 20.3, 7.8, 2.9, 2.2, and 1.6 percent, respectively.

The loss was however slowed down by gains recorded by other large-cap stocks such as DTBK, ABSA, and BAT of 2.9%, 2.4%, and 1.3%, respectively.

Equities turnover declined by 14.0 percent during the week to USD 26.1 million from USD 30.3 million recorded the previous week, taking the YTD turnover to USD 803.0 million.

Foreign investors remained net sellers during the week, with a net selling position of USD 12.3 mn, from a net selling position of USD 0.5 mn recorded the previous week, taking the YTD net selling position to USD 213.7 mn.

The market is currently trading at a price to earnings ratio (P/E) of 8.2x, 37.5 percent below the historical average of 13.1x.

The average dividend yield is currently at 5.1 percent, an increase from the 4.9 percent recorded the previous week, and 1.1 percentage points above the historical average of 4.0 percent.

The increase in dividend yield is mainly attributable to price declines 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 8.2x is 2.0 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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