A man monitors the electronic board at the Nairobi Securities Exchange. Investors searching for safety are better off in cash in this environment. PHOTO | FILE
What you need to know:
Already, the 7.7pc drop in the NSE 20 share index this year has spooked many investors into search for safety.
What does the performance of the NSE 20 market segment tell us right now?
For one, the recent sell-off that took down the NSE 20 share index below the 4,800 level last week marks the beginning of another bear charge in my view.
Already, the 7.7 per cent drop in the benchmark index this year has spooked many investors into a search for safety within the market. Sector performance can easily tell us where investors’ safe havens are.
Over the first half of the year, agricultural stocks have emerged as the biggest beneficiaries of this sector rotation, up some 46 per cent this year.
Lending additional support to the rise in agricultural stocks is the depreciation of the shilling. As the local unit has taken a hit against the US dollar (lost nearly four per cent this year), tea and coffee exports have increasingly become cheaper.
Commodity bulls are also banking on the fact that the greenback may continue to rise as QE is implemented in Europe and Japan and at a time when the US Fed is talking of raising benchmark rates.
Furthermore, with oil prices falling, commodities across the board are declining in price regardless of the unique fundamentals of each.
This will keep some downward pressure on all commodity prices. Currently, tea prices are up 40 per cent at the Mombasa auction to $3.5 (Sh350) per kilogramme.
On the contrary, investors have aggressively been pulling out of cyclical stocks such as Longhorn Publishers and Kenya Airways which has led to a loss of 22 per cent in combined value for the commercial and services market segment, so far the worst performing sector.
The insurance sector, which is the second best performing market segment, is up 8.4 per cent.
This is rather unusual since insurance stocks are not known for their defensive qualities for the simple reason that a considerable portion of their investment holdings is tied to the market.
Hence, a decline in market prices should have a negative effect on their earnings. Anyway, a closer look at the six listed insurance stocks reveals a different picture. Jubilee’s stellar performance has more than “insured” the sector from shame.
Their closer cousins, the banks, are however lagging the overall market with a total loss of 8.9 per cent.
A look into utilities and energy stocks, which theoretically should benefit in a downward cycle, reveals instead a loss of 11 per cent. These stocks have underperformed the market by three per cent over a six-month period.
Manufacturing and construction stocks, on the other hand, have suffered a combined loss of 13 per cent. The investment segment, comprising shares such as Centum and Olympia, is down eight per cent in the year to date.
Stocks on the GEMS have maintained their valuations at a slight dip of 0.2 per cent while telcos represented by Safaricom are up 13 per cent.
The NSE, which represents the investment services segment, is down 5.8 per cent while the automobile segment is also down 10 per cent.
Sector rotation trends show that two out of the 12 market segments are in the green, making portfolio protection a priority. Investors searching for safety are better off in cash in this environment.
Mwanyasi is founder and chief executive of Canaan Capital Limited.
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