A Look At The Performance Of Equities Market

The equities market recorded mixed performance, with NSE 20 gaining marginally by 0.2 percent while NASI and NSE 25 declined by 1.3 and 1.2 percent, respectively.

The performance took YTD of Equities to gains of 4.3 and 3.2 percent for NASI and NSE 25, respectively, and a 0.2 percent loss for the NSE 20.

The equities market performance was driven by 3.6 percent gains by Bamburi and EABL each and declines by banking stocks such as Diamond Trust Bank (DTB-K), Equity Group, and KCB Group which declined by 3.7, 3.5, and 2.7 percent, respectively.

Equities turnover declined by 34.5 percent during the week to USD 19.0 mn, from USD 29.0 mn recorded the previous week, taking the YTD turnover to USD 313.1 mn.

Foreign investors remained net sellers, with a net selling position of USD 4.0 mn, from a net selling position of USD 9.1 mn recorded the previous week, taking the YTD net selling position to USD 13.7 mn.

The market is currently trading at a price-to-earnings ratio (P/E) of 12.0x, 7.1% below the historical average of 12.9x, and a dividend yield of 3.9 percent, 0.2 percentage points below the historical average of 4.1 percent.

NASI’s PEG ratio currently stands at 1.3x, an indication that the market is trading at a premium to its future earnings growth which means that some of the stocks are expensive.

Basically, a PEG ratio greater than 1.0x indicates the market may be overvalued while a PEG ratio less than 1.0x indicates that the market is undervalued.

The current P/E valuation of 12.0x is 55.7 percent above the most recent trough valuation 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.

“We are “Neutral” on the Equities markets in the short term. With the market currently trading at a premium to its future growth (PEG Ratio at 1.3x), we believe that investors should reposition towards companies with a strong earnings growth and are trading at discounts to their intrinsic value,” said Cytonn.