Equities On Upward Trajectory As 3 Indices Register Gains

Last week, the equities market was on an upward trajectory, with NSE 25, NASI, and NSE 20 recording gains of 5.8, 5.3, and 4.0 percent respectively.

The performance took the year-to-date performance to losses of 16.6, 22.3, and 32.4 percent for NASI, NSE 25, and NSE 20, respectively.

The performance was driven by gains recorded by large-cap stocks, with the highest gains being recorded in NCBA, Equity Group, Co-operative Bank, and KCB Group, which gained by 16.1, 10.6, 9.5 percent, and 8.2 percent respectively.

Equities turnover increased by 38.9 percent during the week to USD 25.2 million from USD 18.1 million recorded the previous week, taking the YTD turnover to USD 1.0 billion.

Foreign investors turned net buyers during the week, with a net buying position of USD 2.6 million, from a net selling position of USD 0.9 million recorded the previous week, taking the YTD net selling position to USD 266.3 million.

The market is currently trading at a price to earnings ratio (P/E) of 8.9x, 37.1% below the 11-year historical average of 13.0x.

The average dividend yield is currently at 5.1 percent, 0.3 percentage points below the 5.4 percent recorded the previous week, and 1.1 percentage points above the historical average of 4.0 percent. The decline in dividend yield is attributable to price gains recorded by most stocks.

“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,” said analysts from Cytonn Investments.

The current P/E valuation of 8.9x is 15.6% above the most recent valuation trough of 7.7x experienced in the first week of August 2020. The charts below indicate the historical P/E and dividend yields of the market.

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