NSE seeks lift from 2020 bear run as trading resumes

The Nairobi Securities Exchange (NSE) will be hoping for a lift in 2021 with trading resuming for the New Year on Monday.

Among key remedial measures sought will be the lure of foreign investors whose exodus in 2020 caved a hole in the valuation of publicly listed companies.

For instance, all three key NSE indices including the Nairobi All Share Index (NASI) ended the year in negative territory having closed the year with losses of 8.6 per cent.

Meanwhile, the NSE 25 index closed the year with losses of 16.7 per cent while the NSE 20 index was deep in bear territory having shed 29.6 per cent of its value in the period.

During the past year, equity turnover declined by 5.9 per cent to Ksh.163.5 billion as foreign investors turned net sellers with a net outflow position of Ksh.30.6 billion ($280.9 million) in contrast to inflows of Ksh.1.7 billion ($10.7 million) in 2019.

The foreign investors dashed out of the local market as they sought for save haven investments following the outbreak of COVID-19 in March.

This to trim the valuation of stocks including large-cap companies such as Bamburi, Equity Group, Diamond Trust Bank (DTB), KCB Group and Standard Chartered which declined by 52.7, 31.7, 31.2, 29.4 and 28.8 per cent respectively.

Meanwhile, investor appetites for government securities grew as demonstrated in the over subscription of Treasury bills (T-bills) at 130.3 per cent from 118.7 per cent in 2019.

Treasury bonds (T-bonds) also recorded high investor subscriptions at 130.6 per cent in contrast to 109.7 per cent a year earlier.

Profit warnings

While investors have largely prized in the hit from the pandemic, the dent of the global health crisis on companies is still being assessed ahead of the full year financial disclosures by firms later in quarter one.

So far, 15 companies have issued profit warnings on expected 2020 earnings in comparison to 10 firms in 2019 with the projected profit decline being attributed to a tough macro-economic environment.

Among the companies to have issued profit warnings in the last 12 months include Absa, Diamond Trust Bank (DTB), Standard Chartered, I&M Holdings, NCBA Group, Britam, East African Breweries Limited (EABL) and the Nation Media Group.

Others are Longhorn Publishers, Kenya Power, Unga Group, East African Cables, Kenya Orchards, TPS East African (Serena) and Nairobi Business Ventures (NBV).

Bull run?

Despite the pessimistic view on the performance of firms, analysts state entry opportunities for new investors exist at the low valuation points.

The market is for instance presently trading at a price to earnings ratio of 11.3 times compared to 11.8 times in 2019 or an equivalent 12.9 per cent below an 11-year historical average.

“With the market at valuations below the historical average, we believe there are pockets of value in the market for investors with higher risk tolerance and are willing to wait out the pandemic,” analysts at Cytonn Investments stated.

Kenya comprised of poorly performing equities markets on the continent alongside South Africa, Ghana, Uganda and Zambia.

A few markets defied the odds to grow the valuation of their equities market including Nigeria, Rwanda and Tanzania.