Kenyan equities market reversed the negative trend in the first two weeks of September, with the indices NSE All Share Index (NASI) and NSE-20 Share Index ticking up 9.0% and 8.2%, respectively, on a month-on-month comparison. This could be attributed to the improving business prospects issuing from the second quarter’s deep economic and business strain arising from the containment measures for the Covid-19 pandemic. On a year-to-date (YTD) basis, the NSE-20 and NASI have posted negative returns of 29.3% and 15.4%, respectively.
Across the market, there have been outstanding performers that bucked the general trend. Absa NewGold ETF (a security whose price is derived from gold commodity price) is up 38.3%. Kenya Airways, currently suspended, edged up 86.8% on a buy-out fueled rally while Eaagads Ltd is up 23.8%. The key index counters are all in negative territory with the key banks – KCB, Equity and Co-operative – sharply lower, on average by 30.1% YTD, while Safaricom and EABL have retreated 4.6% and 15.4%, YTD.
Uncertainty around the resolution of the Covid-19 pandemic coupled with what appears to be a second wave outbreak continues weighing heavily on risk asset pricing in markets except the US. This uncertainty has shifted investors’ risk appetite with the accumulation and price rally of the safe-haven asset in global markets—gold, recently touching record high level (USD 2,070 per ounce). The rally in global gold price is reflected at the local bourse, with the Absa NewGold ETF up 38.3% this year. The increasing risks of wave-2 outbreak especially in countries that initially had good success in 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.
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End of August marked closure of 1H20 earnings season with performance mostly depressed as expected. Interestingly, some counters had notable uptick post-announcements in what could be attributed to better than initially expected financial results. Banks such as Equity Group and KCB Group had posted fresh multi-year lows before announcement (KES 28.00 and KES 30.00 respectively) but subsequently rallied over 25% to latest closing prices (KES 37.00 levels). With the economy slowly recuperating, there is a case for continued market uptick given current attractive trading multiples.
Foreign investors continue their dominance at the NSE (controlling c.63.1% of market activity) exiting the local bourse to the tune of KES 12.8Bn YTD. Key counters by foreigners have been Safaricom, Equity Group, EABL, KCB and BAT Kenya. In recent weeks, foreign investors have been net buyers in the market mostly skewed by inflows into Safaricom. We continue observing cautiousness by foreign investors on all other counters likely due to their expected weaker financial performance compared to the Safaricom counter.
The cautiousness towards the equities market has also been observed on the local institutional investors who have been heavy on government securities.
