Rush for blue chips drives NSE to new high

Expectation that the economic growth rate can accelerate to above four per cent from below two per cent last year is a major confidence boost to the outlook for corporate earnings.

Most listed firms recorded a drop and single digit growth in earnings in 2008, from an average of 20 per cent annually in the four years prior to 2008.

The effects of low economic growth worsened by high inflation eroded margins, especially for manufacturing companies.

The banking sector also suffered from slower growth in loans and higher loan loss provisions.

But as firms continue to unveil their 2009 results, it is becoming clear that corporate Kenya is stepping out from the era of flat profitability, which is translating into improved dividend payout.

“There is a feeling that the economy is getting better and this is translating into the improving performance of the market,” said Joshua Njiru, general manager at Madison Asset Management Ltd.
An upswing of sentiment seems to have generated its own momentum at the NSE.

Entry point

Still, market players are reluctant to rule out a possible correction in the market as investors take profits.

“The market seems to be over-bought. It is possible that it will correct itself as people start taking profits,” said Reginald Kadzutu, the head of fund management at Amana Capital.

At its lowest point last year, a number of investors seeking an attractive entry point into the stock market took advantage of the low prices at the bourse.

While analysts project a steady recovery of the market, there are also expectations that some profit-taking will lead to a dip in share prices at the bourse.