Equities Markets Still On Downward Trajectory For Second Week

During the week, the equities market was on a downward trajectory, with NASI, NSE 25, and NSE 20 declining by 0.3, 0.4, and 1.4 percent, respectively.

The decline took their YTD performance to losses of 15.8, 21.3, and 30.8 percent, for NASI, NSE 25, and NSE 20, respectively.

The performance was mainly driven by declines recorded by banking stocks such as KCB Group, Standard Chartered Bank (SCBK), and Diamond Trust Bank (DTB-K), which declined by 2.4, 2.3, and 1.2 percent, respectively.

The losses were however mitigated by gains recorded in other banking stocks such as NCBA Group, ABSA, and Co-operative Bank of 1.5, 2.3, and 2.6 percent, respectively.

Equities turnover increased by 11.2 percent during the week to USD 12.1 million, from USD 10.9 million recorded the previous week, taking the YTD turnover to USD 1.2 billion.

Foreign investors remained net sellers during the week, with a net selling position of USD 4.0 mn, from a net selling position of USD 2.0 million recorded the previous week, taking the YTD net selling position to USD 263.2 million.

The market is currently trading at a price to earnings ratio (P/E) of 9.3x, 28.2 percent below the 11-year historical average of 13.0x.

The average dividend yield is currently at 5.1 percent, 0.1 percentage points above the 5.0 percent recorded the previous week, and 1.1 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 out the pandemic,” said Cytonn Investments.

The current P/E valuation of 9.3x is 21.0 percent above the most recent valuation trough of 7.7x experienced in the first week of August 2020.

The money markets remained liquid during the week, with the average interbank rate remaining unchanged at 2.4 percent, mainly supported by government payments that offset tax receipts.

The average interbank volumes also were Kshs 8.0 bn the same as the previous week. According to the Central Bank of Kenya, commercial banks’ excess reserves came in at Kshs 14.8 bn in relation to the 4.25 percent Cash Reserve Ratio.