Bearish sentiment protracts continues being the dominant theme in the Kenyan equities markets as uncertainty clouds economic and business recovery from the effects of the ongoing global Covid-19 pandemic. On a year-to-date (YTD) basis, the Nairobi Securities Exchange 20-Share Index (NSE-20) and Nairobi Securities Exchange All Share Index (NASI) have posted negative returns of 24.2% and 14.1%, respectively. Notable out-performers YTD are Barclays ETF Gold (+22.1%), a security whose value is pegged on the value of gold (a safe haven asset); Kenya Airways (+39.5%) on a recent price rally; and Carbacid Investments (+12.0%). On month-to-date basis (MTD), there have been outstanding outperformers (Flame Tree Group 56.4%, Britam +47.3% and Kenya Power +30.9%). The key index counters, in particular in the banking sector, have retreated sharply, with Equity Group and KCB Group down 34.9% and 35.2% YTD, respectively.

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The bearish market coupled with uncertainty around resolution of the Covid-19 pandemic, has shifted investors’ risk appetite with the accumulation and price rally of the safe haven asset in global markets, gold, recently trading close to its five-year high level (USD 1,721/ounce).

At the local bourse, the Barclays NewGold ETF is the best performer up 22.1% this year. Additionally, and despite the pandemic, geopolitical risk is rearing its ugly head with trade tensions between the world’s two largest economies, which could protract global economic recovery. On the back of these issues, there is a possibility of persistent investor flows towards the safe haven asset including advanced economies’ government bonds.

The banking sector finalized the release of its Quarter 1 results with performance mostly subdued on increased loan loss provisions across the sector. Equity Group pulled a surprise by cancelling its full year 2019 dividend while NCBA decided on a swap from cash dividend to stock dividend, all citing the need to preserve capital due to the rising economic uncertainties. The banking sector stock prices reflect this economic and business reality barely moving on a month-to-date basis (averaging -0.9% MTD, -25.6% YTD). The sector is likely to experience a tougher quarter 2 given that the pandemic struck the economy in the last two weeks of Quarter 1. This dampens prospects of a large upswing in the stock market despite the most investable stocks trading at attractive multiples.

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Foreign investors continue their dominance at the NSE (controlling c.62.5% of market activity on a daily basis trading) exiting the local bourse to the tune of KES9.6Bn YTD. Key counters by foreigners have been Safaricom, EABL, KCB, Equity and BAT Kenya. The pulling of funds from the NSE and other frontier markets points to growing concerns by foreign investors about the impact of the pandemic and the ensuing global recession in frontier and emerging markets, which could be the hardest hit by the pandemic effects and the trade wars between the US and China.

The cautiousness towards the equities market has also been observed on the local institutional investors who have preferred the fixed income government securities. This trend is likely to continue in the near-term, the fixed income class propelled by the dialing up of domestic borrowing in the next financial year.