NSE retreats 5.5pc as foreign investors cut trading
A Nairobi Securities Exchange staff on the trading floor. PHOTO | FILE
What you need to know:
The NSE 20 share index has now dropped below the 3800 point level for only the second time in five years, closing at 3799 last Thursday, before slightly gaining ground to stand at 3801.31 last Friday.
The Nairobi Securities Exchange (NSE) has retreated by 5.5 per cent over the past one month as foreign investors reduced their trading leaving 15 of the top 20 largest stocks in the red.
Market data for May compiled by Standard Investment Bank (SIB) shows key indicators for the market such as the indices, turnover, and foreign turnover have all declined.
The NSE 20 share index has now dropped below the 3800 point level for only the second time in five years, closing at 3799 last Thursday, before slightly gaining ground to stand at 3801.31 last Friday.
The market has slackened off in the aftermath of bank stocks reporting their quarter one results, which were mixed.
“We attribute the decline in the index to increased supply on most counters. In the short term we expect investors to reduce their exposure to banking counters as the sector continues to grapple with declining loan book quality. We therefore expect the downward trend (marginally) in the overall market index to be maintained,” said Faida Investment Bank in a market summary.
The market turnover fell by Sh300 million to Sh7.3 billion in May from April’s Sh10 billion. Market capitalisation has declined by Sh40 billion to Sh2.02 trillion since the beginning of May.
On the foreign trading side, investors recorded a second straight month of inflows, but the volume declined compared to April. They pumped in a net of Sh301 million into the bourse compared to Sh388 million in April. In March they had pulled out a net of Sh490 million.
Among individual stocks, Equity Holdings dominated the foreign inflows charts, with the investors pumping in a net of Sh620 million to the counter.
It was followed by KenolKobil at Sh87.3 million, Kenya Commercial Bank at Sh77.5 million and I&M Holdings at Sh69.4 million.
In foreign net outflows, East Africa Breweries Ltd led the market with Sh286.4 million, while Bamburi Cement had net outflows of Sh92 million. Jubilee Holdings and Cooperative Bank recorded net foreign outflows of Sh79.5 million and Sh68.7 million respectively.
On a year-to-date basis, the main 20 share index is down six per cent.
Although analysts at Exotix Partners and Equity Investment Bank have raised concerns over continued inflow of capital (in a rising US rate environment), pressure on banks’ profitability and balance sheet growth, they remain more optimistic on the Kenyan stocks in the long run compared to other frontier markets.
“We remain positive on Kenya equities because the market valuation multiple of trailing price-to-book has de-rated approximately 20 per cent from its start-of-2015 peak, oil prices remain relatively low and the economic growth outlook is brighter than that of most frontier peers,” said Exotix Partners in a Kenya market research note.
According to Cytonn Investments, the market is also looking favourable on two other multiples—price to earnings and dividend yield.
The market is currently trading at a price-to-earnings ratio of 13.2 times versus a historical average of 13.8—indicating that most stocks are not overpriced—and a dividend yield of 4.2 per cent versus a historical average of 3.4 per cent.
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