Last week, the equities market was on a downward trajectory, with NSE 20, NASI, and NSE 25 recording losses of 1.6, 0.3, and 0.4 percent respectively.
The performance of the equities during the week took their YTD performance to losses of 33.8, 20.9, and 13.9 percent for NSE 20, NSE 25, and NASI, respectively.
The equities market performance was driven by losses recorded by large-cap stocks such as Diamond Trust Bank, Equity Group, and EABL of 2.8, 2.7, and 0.8 percent respectively.
The losses were however mitigated by gains recorded by KCB Group, NCBA Group, and BAT of 2.6, 1.1, and 0.5 percent respectively.
Equities turnover rose by 6.5 percent during the week to USD 21.3 mn, from USD 20.0 mn recorded the previous week, taking the YTD turnover to USD 1.3 billion.
Foreign investors turned net sellers during the week, with a net selling position of USD 3.0 mn, from a net buying position of USD 0.2 mn recorded the previous week, taking the YTD net selling position to USD 280.9 mn.
The market is currently trading at a price to earnings ratio (P/E) of 10.7x, 17.3 percent below the 11-year historical average of 13.0x.
The average dividend yield is currently at 4.9 percent, unchanged from what was recorded the previous week, and 0.9 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.
The current P/E valuation of 10.7x is 39.1 percent above the most recent valuation trough of 7.7x experienced in the first week of August 2020.
Rates in the fixed income market have remained relatively stable due to the high liquidity in the money markets, coupled with the discipline by the Central Bank as they reject expensive bids.
The government is 48.7 percent ahead of its prorated borrowing target of 196.4 billion shillings having borrowed 291.9 billion shillings.
“In our view, due to the current subdued economic performance brought about by the effects of the COVID-19 pandemic, the government will record a shortfall in revenue collection with the target having been set at 1.9 trillion shillings for FY’2020/2021,” said Cytonn Investments.
“Owing to this uncertain environment, our view is that investors should be biased towards short-term to medium-term fixed income securities to reduce duration risk,” Cytonn added.