Equities On A Free Fall With NASI, NSE 20, And NSE 25 Declining

The equities market was on a downward trajectory, with NASI, NSE 20, and NSE 25 declining by 1.1, 2.2, and 2.1 percent, respectively, taking their YTD performance to gains of 15.6, 6.7, and 12.3 percent for NASI, NSE 20, and NSE 25, respectively.

The equities market performance was driven by losses recorded by large-cap stocks such as Diamond Trust Bank (DTB-K), EABL, Safaricom, NCBA, and ABSA, which declined by 4.7, 4.2, 3.6, 2.9, and 2.4 percent, respectively.

During the week, equities turnover increased by 77.1 percent to USD 26.0 million, from USD 14.7 mn recorded the previous week, taking the YTD turnover to USD 954.7 million.

Foreign investors remained net sellers, with a net selling position of USD 7.2 mn, from a net selling position of USD 3.8 mn recorded the previous week, taking the YTD net selling position to USD 25.9 mn.

The market is currently trading at a price-to-earnings ratio (P/E) of 13.6x, 5.1 percent above the historical average of 12.9x, and a dividend yield of 3.2 percent, 0.8 percentage points below the historical average of 4.0 percent.

Key to note, NASI’s PEG ratio currently stands at 1.5x, 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, which is currently 61.7 percent of the market, the market is trading at a P/E ratio of 11.3x and a PEG ratio of 1.3x.

The current P/E valuation of 13.6x is 76.5 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.