During the week, the equities market recorded mixed performance, with NASI and NSE 25 gaining by 5.1 and 1.5 percent, respectively, while NSE 20 declined by 0.6 percent.
The performance took their YTD performance to losses of 14.8, 12.1, and 14.4 percent, for NASI, NSE 20, and NSE 25, respectively.
The equities market performance was mainly driven by gains recorded by large-cap stocks such as Safaricom, BAT, and Bamburi which recorded gains of 11.5, 2.2, and 1.0 percent, respectively.
The gains were however weighed down by losses recorded by banking stocks such as KCB Group, Co-operative Bank, Equity Group, and ABSA Bank of 4.6, 3.9, 3.2, and 3.1 percent, respectively.
During the week, equities turnover declined by 51.9 percent to USD 11.0 mn from USD 22.9 mn recorded the previous week, taking the YTD turnover to USD 506.8 mn.
Additionally, foreign investors remained net sellers, with a net selling position of USD 3.9 mn, from a net selling position of USD 7.3 mn recorded the previous week, taking the YTD net selling position to USD 119.2 mn.
The market is currently trading at a price-to-earnings ratio (P/E) of 7.1x, 44.7 percent below the historical average of 12.8x, and a dividend yield of 5.7 percent, 1.7 percentage points above the historical average of 4.0 percent.
Key to note, NASI’s PEG ratio currently stands at 0.9x, an indication that the market is undervalued relative to its future growth.
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.
We are “Neutral” on the Equities markets in the short term due to the current adverse operating environment and huge foreign investor outflows, and, “Bullish” in the long term due to current cheap valuations and expected global and local economic recovery.
With the market currently trading at a discount to its future growth (PEG Ratio at 0.9x), we believe that investors should reposition towards value stocks with strong earnings growth and that are trading at discounts to their intrinsic value. We expect the current high foreign investor sell-offs, the upcoming Kenyan general elections, and the slow vaccine rollout to continue weighing down the economic outlook in the short term.