An analysis of the undertones driving our equities and the fixed-income markets over the last couple of months presents reassuring outlooks for both prospective local and foreign investors at the Nairobi Securities Exchange.
For a start, the Nairobi bourse is currently trading at attractive multiples on the back of a massive sell off in 2018 which saw the NSE 20 share index take a 23.5 percent beating to close at 2,833 and the NASI decline 16.6 per cent to 86.47 points.
The upside to this is that valuations are now ever so attractive, presenting an excellent entry point for most stocks which previously traded at a premium to intrinsic value.
On the macro-economic front, the forecast for 2019 is confident and to quote the Genghis Capital Playbook 2018 released early this month, “This year, we see the Kenyan market being the proverbial eagle, rising from the ashes of political uncertainty (pre-handshake), a biting credit crunch that stifled private sector growth, constrained corporate earnings growth, poor corporate governance that resulted in the near collapse of retail and manufacturing giants and a massive foreign outflow at the NSE to the tune of $292m (Sh29.2 billion).”
For most listed corporate entities, the sentiments are positive that this year will be a better one than the last two years have been, with less profit warnings and stronger earnings growth, on the back of a more attractive macro background, which will drive activity on the bourse. Majority of these companies have announced ambitious capacity expansion programmes in addition to introduction of new products and services which will provide stimulus for growth.
There are also opportunities presented once the government starts executing its Big Four development agenda. From where I sit, and I can be pardoned due to the skewed structure of our market capitalisation favoring blue chips, I see most of the opportunities in the financial counters, mostly the banks.
Without going into specifics and looking at price to book valuation matrix to determine which counters present the most viable investment option, there are several counters which present attractive prospects, while others are good buys for dividend seekers. While the insurance sector has immense potential, it will take time before it can convert into a favored investment vehicle especially because of the underlying bottlenecks that undermine the sector including fraud and price undercutting.
For this sector, considerable technological investments to tap into the micro-insurance space must be harnessed to make the sector more magnetic to investors. It is a fact that our market has been deprived of any new listings in the main and alternative investments segments for several years now, the last having been the Barclays ETF in 2017 and before that, the Stanlib Fahari REIT in 2015. This year, there are projections for the possibility of one listing on the main or alternative markets segment happening. The NSE had alluded to a few potential listings in 2018 but they failed to take off possibly owing to the depressed market conditions and the hope is that one of them will mature in 2019, bringing back excitement at the bourse.
In addition, foreign investor inflows are trooping back to our market with frontier markets appearing to be more promising this year compared to emerging and developed markets backed by expectations of higher earnings growth.
Market conviction is that Kenya looks attractive compared to other African counterparts including Nigeria which is still grappling with forex challenges and upcoming elections that may see a further flight of capital, potentially to Kenya.
That is why the Nairobi bourse can be rightly described as a buyers’ market with large cap foreign investor favorites offering great entry points and significant upside.
Joy Dsouza, head of research, Genghis Capital.
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