Equities Embarked On An Upward Trajectory During The Month

Last week, the equities market was on an upward trajectory, with NSE 20 gaining by 0.2 percent, while NASI and NSE 25 both gained by 1.4 percent, taking their YTD performance to gains of 2.1, 13.3, and 9.8 percent for NSE 20, NASI, and NSE 25, respectively.

The equities market performance was mainly driven by gains recorded by large-cap stocks such as ABSA Bank Kenya, Equity Group, and Safaricom of 3.3, 2.8, and 1.9 percent. The gains were weighed down by losses recorded by stocks such as, Bamburi which declined by 6.2 percent.

During the week, equities turnover increased by 107.9 percent to USD 44.7 mn, from USD 21.5 million recorded the previous week, taking the YTD turnover to USD 575.5 million.

Foreign investors remained net sellers, with a net selling position of USD 7.2 million, from a net selling position of USD 1.7 million recorded the previous week, taking the YTD net selling position to USD 24.7 million.

The market is currently trading at a price-to-earnings ratio (P/E) of 14.3x, 10.4 percent above the historical average of 12.9x, and a dividend yield of 3.2 percent, 0.9 percentage points below the historical average of 4.1 percent.

Key to note, NASI’s PEG ratio currently stands at 1.6x, an indication that the market is trading at a premium to its future earnings growth.

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.

Excluding Safaricom, the market is trading at a P/E ratio of 12.4x and a PEG ratio of 1.4x. The current P/E valuation of 14.3x is 85.2 percent above the most recent trough valuation 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 6.9 percent behind its prorated borrowing target of 528.6 billion shillings having borrowed 492.2 billion shillings.

Read More: Equities Moved Through May With Mixed Signals