Sri Lanka, Romania and Kenya come out as most attractive equity markets
Argentina, Morocco and Egypt come out least attractive.
Citigroup says that the local securities exchange will be a beneficiary of improved economic environment
Kenya’s listed companies are together with Sri Lanka and Romania ranked as the most attractive among frontier markets.
Citigroup says in its latest market analysis that the local securities exchange will be a beneficiary of improved economic environment that should then positively impact corporate earnings.
It also sees Nairobi Securities Exchange #ticker:NSE as having attractive valuations even though it may be weighed down by monetary factors namely the capping of lending rates and the floor on deposit rates that have contributed to tightening the lending market in the past year.
“Sri Lanka, Romania and Kenya come out as most attractive in frontier markets.
Argentina, Morocco and Egypt come out least attractive. Kenya also scores well on valuations as well as on earnings momentum, offset by monetary factors,” says the report.
The analysts at the investment bank said Kenya will benefit from the conclusion of elections and easing of the restrictions on interest rates would be a further boost.
The Central Bank of Kenya (CBK) and the National Treasury have suggested the caps be removed to encourage increased lending especially to small and medium enterprises (SMEs) with a view to having a positive impact on the broader economy.
“With elections now behind us, we see 2018 as a more straightforward year of good economic performance, supporting earnings. Easing the constraints of the Law, if not outright repeal, could further support sentiment,” said the report.
Citi noted the NSE had a 36 per cent total return (both market appreciation and dividend yields) in 2017 despite the implementation of the banking law on interest caps as well as the presidential elections.
“The Kenyan market did quite well in 2017 (+36 per cent total return), despite the dual headwinds of the 2016 Banking Law, proscribing limits on deposit and lending rates and presidential elections,” said Citi.
The limits on interest rates are seen as having contributed to the low uptake of loans where private credit expansion is currently below two per cent.
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Note: The results are not exact but very close to the actual.
