February 2016 Market Report-NSE Investors Wealth Up By KES 45 Billion

Kenya

Equity Market

Dear Investor,

It is that time of the month when we do a post-mortem of the markets. The markets are full of surprises as always!! We begin with this quote by Peter Lynch before diving into the numbers:

“You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets.”

The NSE All Share Index closed at 141.22 points this represents an increase of 2.26% since the beginning of the month. The benchmark NSE 20 Index closed at 3,871.62 points representing an increase of 2.77%. Volume of shares traded during the month reduced drastically by around 21.5%. Shares traded during the month totaled 331 million. Total number of deals executed were 24,456. Value of shares traded stood at KES 9.907Bn a drop of almost KES 3Bn compared to the previous month.

Investors had paper gains amounting to KES 45 Billion In February measured by market capitalization which stood at KES 1,988.639Bn (USD 19.539Mn) on Friday the 26th.

Source: Bloomberg

Source: Bloomberg

Monthly Gainers

We had 28 counters in the green as we closed the month which is generally better than January where we had only 11 counters with gains. We have picked the top 10 gainers as shown below:

Source: NSE, Kenyan WallStreet

Surprisingly in the Banking Sector only two counters were in the red zone (National Bank of Kenya and CFC Stanbic Bank) compared to January when only two counters were in the green (National Bank of Kenyan and Diamond Trust Bank). Interesting indeed!

Monthly Losers

Agricultural sector took a hit in February led by Kapchorua Tea. We have highlighted the top 10 losers of the month in the table below:

Source: NSE, Kenyan Wall Street

You can roast the performance of the counter of your interest from our Monthly Performance Calc.xlsx

Heavily Traded Counters

The following listed companies had the most liquidity (volume) in the market.

Source: NSE, Kenyan Wall Street

Chart of the Month

Our chart of the month is Longhorn Kenya, it rallied +22.68% during the period to close at KES 5.95. 474,400 shares were traded. The rally in the price is mainly attributed to their impressive half year results for the period ended 31 December 2015. Longhorn posted an after tax-profit of KES 67.8Mn.

Source: Financial Times

Special Chart of the Month

We thought it would not be fair to talk about KenGen since it was one of the top 5 counters with huge volumes traded during the month and was part of the top gainers of the month thus giving it the ‘special’ feature.

KenGen traded a total of 21,165,900 shares. The price rallied from KES 5.95 to KES 7.00 representing a gain of 17.65%. Investors have been having renewed interest on this counter which has been consistently posting excellent financial results. It recently released half year results for the period ending 31 December 2015 whereby Profits before Tax rose by 121% to KES 8.38Bn.

Source: Financial Times

Fixed Income Market

The debt market had a total turnover of KES 23.651Bn an increase of 11.7% compared to the previous month. 372 deals were executed during the month.

Heavy trading was on the Infrastructure Bond IFB/2015/9Yr with a total value traded consisting almost half (43.7%) of the total turnover. Turnover on the 9yr Infrastructure bond totaled KES 10.331Bn. Average traded yield on the final week of the month was 13.4018%. The bond was issued on 14 December 2015 maturing on 2 December 2024. It had a coupon rate of 11%.

Forex Matters

The Kenyan Shilling

USDKES

The Shilling has strengthened towards the 101 range compared to the previous month when it was in the 102 range. This attributed largely due to Kenya being a net oil importer leading to improvements in the current account deficit.

General African Market Performance

Performance of CBK’s Treasury Bills

The average interest yield on the 91 Day T-Bill was a straight fall in the month of February, closing at 9.3% compared to 11.7% registered at the end of January.

The 182-Day T-Bill average interest rate closed the month of February at 11.9% against 14.4% recorded at the end of January.

The average interest rate on the 364-Day T-Bill closed the month at 13.3% against the 14.5% recorded at the end of January.

Related; January 2016 Market Report;NSE Investors wealth fell by Ksh 120 Billion

Credit Ratings

On Feb 12, 2016 Moody’s affirmed a stable outlook on Kenya. Here is an extract of the statement:

“The key drivers of the affirmation are Moody’s expectations that:

1. Kenya’s growth performance will remain solid, supported by a substantial level of infrastructure spending which will boost productivity; a rapidly expanding services sector; and a near-term improvement in the country’s terms of trade. Kenya is well-positioned to benefit from greater economic integration in East Africa over the coming years further cementing its economic position within the region.
2. Kenya’s sizeable fiscal and current account deficits will begin narrowing from FY2016/17 over the next three years as policymakers pursue a contractionary stance of fiscal policy. This will reduce Kenya’s reliance on external debt financing and ensure fiscal sustainability. As a net oil importer, Kenya’s external position is already benefitting from the decline in oil prices.

Moody’s has left the local-currency bond and deposit ceilings unchanged at Ba1 and left the foreign-currency bond ceiling unchanged at Ba2 as well as the foreign-currency deposit ceiling at B2.

RATINGS RATIONALE

FIRST DRIVER — STRONG ECONOMIC GROWTH PROSPECTS

The first driver of the affirmation is the country’s strong growth prospects. Kenya’s economy is expanding rapidly — real GDP expanded by an estimated 5.7% in 2015 compared to an average of 5.3% for similarly rated Moody’s peers. Overall, growth continued to be broad-based, supported by strong expansion across all sectors of the economy, with the exception of the tourism sector where the country’s security challenges have contributed to a long downturn.

Growth prospects for 2016 and onwards remain strong. We project real GDP growth of 5.5% in 2016 rising to 6% by 2018. The drivers will remain broad based and include continued albeit declining public investment spending and productivity gains from the completion of key infrastructure projects, notably the Standard Gauge Railway; greater regional integration; robust household consumption supported by low inflation and fuel prices; and a recovery of the tourism sector, the latter supported by the lifting of the last remaining travel advisories to Kenya by foreign governments.

SECOND DRIVER — DECLINING FISCAL AND EXTERNAL IMBALANCES

The second driver reflects our expectation that Kenya’s fiscal and current account deficits will begin narrowing from FY2016/17 as the government pursues a contractionary fiscal policy over the next three years. Like other frontier and emerging markets, Kenya has experienced periodic episodes of capital outflows since the “taper tantrum” driven financial market turbulence in 2013. Against this backdrop of increased global financial market volatility and rising investor risk aversion, a fiscal tightening will reduce Kenya’s reliance on external debt financing and its vulnerability to global financial market shocks. It will also directly address investor concerns over the country’s domestic and external imbalances.

Specifically, the government aims to increase revenue to 21.4% of GDP over the next three years from 20.3% of GDP in FY2014/2015, while containing the growth of total expenditures, with the latter declining from 29.6% of GDP in FY2014/15 to 26.5% of GDP over the same period. Expenditure cuts will focus on recurrent spending, but capital spending is expected to gradually decline from current levels as a number of large infrastructure projects reach completion. Consequently, the overall fiscal deficit is projected to decline from 8.5% in FY2014/15 to 8.1% in FY2015/16, and gradually reach 4.3% of GDP by FY2018/19. We expect debt levels will peak at 50% of GDP in 2016, and begin trending downwards thereafter alongside Kenya’s debt affordability (interest payments to revenue).

At the same time, we expect the current account deficit to narrow from 9.5% of GDP in 2015 to around 6.7% of GDP over the next three years, supported by the positive terms of trade and the decline in capital imports related to infrastructure projects. This will allow Kenya to reduce external debt financing from the current high levels.

RATIONALE FOR THE STABLE OUTLOOK

The stable outlook reflects our expectation of a continued strong growth performance, and our view that Kenya’s sovereign credit profile will remain resilient to current pressures from global financial volatility. Heightened external volatility poses risks, given Kenya’s large twin deficits and its reliance on external financing. But the terms of trade improvement has improved the external position.

WHAT COULD CHANGE THE RATING – UP

A significant over-performance with regard to growth, fiscal consolidation and the external position would put upward pressure on Kenya’s rating. Also credit positive would be a decline in terrorist incidents that would improve the environment for tourism.

WHAT COULD CHANGE THE RATING – DOWN

A continuation or escalation of security incidents – or a renewal of political instability – that substantially dampens economic growth prospects could put downward pressure on Kenya’s rating, as could mounting fiscal slippages that prevent a stabilization and eventual reversal of the rise in government indebtedness. In particular, the process of fiscal devolution to newly created counties or large increases in public sector wages could result in larger than anticipated deficits as well as increased political infighting.

Default history: At least one default event (on bonds and/or loans) has been recorded since 1983.”

Reference Table

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