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Genghis Capital predicts busy activities at the Nairobi bourse

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By Steve Umidha

Kenyan investment bank, Genghis Capital, has today released a report predicting that the Nairobi Securities Exchange (NSE) will offer investment opportunities for the year 2020; presenting an opportunity to investors to continue diversifying their portfolios, and post positive returns, in a year that is expected to post mixed economic results.

In a newly released playbook themed, “Harnessing Value”, the analysts note that the return of foreign investors to the NSE in 2019 after two years of massive foreign investor outflow, indicates rising interest in the local bourse as pricing remain attractive.

Kenya is currently trading at discounted multiples compared to its historical average despite last year’s market rally. The rally (bolstered by the banking sector and Safaricom in the fourth quarter of 2019) propped the Nairobi All Share Index (NASI) by 18.5% to 166.41 points.

It is on this backdrop the 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 (on depressed prices from profit taking) from the second part of the year. As at present, 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 Genghis Capital Playbook 2020 reads in part.

“The NSE abounds with value opportunities, including some large cap foreign investor favorites 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” the report says further.

In the playbook 2020, the research team at Genghis Capital have revealed their new look model equity portfolio, which features momentum stocks, income stocks and value stocks.

In 2019, the three portfolios outperformed the market with returns of 39.2%, 38.4% and 10.3% from the respective portfolios. This was against the market returns of -6.3% on NSE-20 and 18.5% 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. Further, if one is looking for income, KCB Bank, Stanchart, Barclays Bank and COOP Bank and KenGen are their best bets,” the report states.

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% attributed to the base effect (GDP 2019E at 5.6%) and the sturdy contribution of services to the overall economy. However, private consumption and government spending pose major headwinds to a robust growth.

Headline inflation is projected to oscillate between 5.00% and 8.00% this year, with food inflation expected to revert to the 2-year average levels of 4.0% – 9.0% with long rains season (March – May) expected to normalize food supplies. The subdued global demand is expected to have a positive knock on local fuel pump prices, curbing fuel inflation flare up.

Further, the Kenya Shilling is projected to range between 100.00-104.00 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 KES 391.3Bn following the first Supplementary Budget.

On the monetary policy side, the report projects a single monetary policy rate cut in the second half of the year. It notes that private sector credit growth will be under gradual pick-up following the removal of interest rate caps.

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