OUTLOOK

Genghis predicts better NSE performance in 2020

Further projects the shilling to range between 100.00-104.00 against the US dollar for most of the year.

In Summary
  • Valuations are attractive for some of the counters especially stocks that missed out on last year’s rally despite their attractive prices and strong fundamentals.
  • Genghis Capital has revealed its new look model equity portfolio, which features momentum stocks, income stocks, and value stocks.

An investor looks at the digital board at the Nairobi Stock Exchange(NSE)/FILE
An investor looks at the digital board at the Nairobi Stock Exchange(NSE)/FILE

Investment bank, Genghis Capital has predicted a bull run at the Nairobi Securities Exchange (NSE) this year, Kenya's mixed economic fortunes notwithstanding.

In a report titled 'Harnessing Value', analysts at the investment firm say the return of foreign investors to the NSE in 2019 after two years of massive outflow, indicates rising interest in the local securities market driven by attractive pricing.

According to the report, Kenya is currently trading at discounted multiples compared to its historical average despite last year’s market rally. The rally bolstered by Safaricom’s good results and an  improved financial sector counter propped the Nairobi All Share Index (NASI) by 18.5 per cent to 166.41 points.

 
 

‘’It is on this backdrop that Genghis expects profit-taking on most of the counters that rallied last year to depress the equities market in the early part of the year before a general uptick in the market from the second part of the year,’’ the report observes.

It says that presently, valuations are still attractive for some of the counters especially stocks that missed out on last year’s rally despite their attractive prices and strong fundamentals.

“The NSE abounds with value opportunities, including some large-cap foreign investor favourites that continue trading at discounted prices.  We see value in EABL and KenGen on the non-financials front and KCB Bank on the financial side” says the report.

in the report, Genghis Capital outlines its new look model equity portfolio, which features momentum stocks, income stocks, and value stocks.

Last year, the three portfolios outperformed the market with returns of 39.2 per cent, 38.4 per cent and 10.3 per cent from the respective portfolios. This was against the market returns of -6.3 percent on NSE-20 and 18.5 per cent from the NASI.

“This year, we have recalibrated the portfolios; with investors who are looking to take advantage of momentum swings being advised to consider Safaricom, EABL, KCB Bank and Equity Bank while those looking for value stocks are advised to purchase EABL, KenGen and Kenya Re,’’ analysts said.

They added that if one is looking for income, KCB Bank, Stanchart, Barclays Bank and Coop Bank and KenGen are the best bets.

 
 

The report further predicts foreign investor inflows will continue supporting the local bourse backed by discounted valuations following on from price correction by profit-taking investors during the first half of the year and expectations of higher earnings growth from the key counters.

Overall, Genghis expects the economy to post a slight improvement this year with real GDP growth projected at 5.7 per cent attributed to the base effect and the sturdy contribution of services to the overall economy. However, private consumption and government spending pose major headwinds to robust growth.

Headline inflation is projected to oscillate between five and eight per cent this year, with food inflation expected to revert to the two-year average levels of four to nine per cent with long rains season expected to normalise food supplies.

They predict that the subdued global demand is expected to have a positive knock-on local fuel pump prices, curbing fuel inflation flare-up.

Genghis Capital further projects the shilling to range between Sh100-Sh104 against the US dollar for most of the year.

“With the lifting of interest rate caps, we expect a new IMF Stand-By Arrangement facility at the tail end of the first quarter of 2020, which will further cushion the domestic unit,” the report notes.

The government is expected to be on aggressive domestic borrowing stance in the first half of the calendar year with net domestic borrowing quantum having edged upwards to Sh391.3 billion following the first Supplementary Budget.