The second half period of 2020 has been marked with persistent bearish sentiment exacerbated by the financial performance amidst uncertainty in economic and business recovery in the pandemic era. On a year to date (YTD) basis, the NSE-20 and NASI have posted negative returns 34.2% and 22.2%, respectively. However, there have been outstanding performers that bucked the general market trend. Absa NewGold ETF (a security whose value is pegged on the value of global price of gold) is up 39.5%; Kenya Airways (+86.8%) on a buy-out fueled price rally; and Olympia Capital (+21.9%). The key index counters are all negative with the key banks (Equity, KCB and COOP) sharply lower, on average by 41% YTD while Safaricom and EABL have retreated 12.1% and 22.4% YTD, respectively.
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 closing at record high level (USD 2,070/ounce). The rally in global gold price is reflected at the local bourse, with the Absa NewGold ETF up 39.5% this year. Re-emergence of virus cases in countries that had good success in the initial containment increases the risk of protraction in global economic recovery. This is likely to increase cautiousness by investors towards risk assets with preference for the safe haven asset including advanced economies’ government bonds.
The banking sector kicked off the release of first half 2020 results with performance mostly subdued on increased loan loss provisions across the sector and depressed income levels. Equity Group led the sector with the highest increase in provisions at 773% y/y whilst KCB increased by 252% y/y. Depressed income levels were mostly due to lower transactional activity on the back of slow-down in the economy and zero-rated bank charges on certain transactions. In quick reaction to the performance, some of the banking sector stocks retreated to fresh 52-week lows with Equity Bank tumbling to KES28.00 while KCB to KES30.00 level. With the economy largely still weak, this dampens prospects of a large upswing in the stock market despite the most investable stocks trading at attractive multiples.
Foreign investors continue their dominance at the NSE (controlling c.63.1% of market activity) exiting the local bourse to the tune of KES13.2Bn YTD. Key counters by foreigners have been Safaricom, Equity Group, EABL, KCB and BAT Kenya. The pulling of funds from the NSE and other frontier markets points to concerns by foreign investors about the economic shape of these countries to absorb the effects of containment measures put in place to curb the spread of the virus.
The cautiousness towards the equities market is mirrored by local institutional investors who have been bidding heavily for government securities.