Nairobi Stock Exchange up despite 22.5% drop in turnover

The Kenyan equities market experienced a bullish sentiment last week, as indicated by the performance of the Nairobi All Share Index at 3.8 per cent and Nairobi Securities Exchange 20 Share Index at 2.7 per cent. However, despite this positive sentiment, total market turnover saw a significant decline by 22.5 per cent from KES 1.14 billion. To delve deeper into the factors contributing to this trend and to provide a current market update, CNBC Africa spoke with Caleb Mugendi, Investment Manager at Genghis Capital Asset Management from Nairobi, Kenya. Mugendi attributed the bullish sentiment in the Nasdaq and NSE20 indices to various factors, including a steady rise since March following the release of full-year results for major banks. This trend, amounting to over 20 per cent increase, signals a bullish market. The primary drivers behind this trend are the earnings growth in large-cap sectors, particularly evident in the banking stocks. Banks like Equity Bank and Cooperative Bank have reported impressive earnings growth rates, fueled by increases in net interest income and non-funded income. Mugendi highlighted that the current high-interest rate environment has played a significant role in boosting interest income for banks. With short-term interest rates exceeding 15 to 16 per cent, banks have shifted their focus to government securities, capitalizing on the lucrative returns in the treasury bills and bonds market. Despite the positive momentum in the indices, the market turnover decreased slightly last week. Mugendi explained that investors are inclined to retain their positions in a bull market, capitalizing on undervalued counters for future dividends and earnings growth prospects. Additionally, some foreign investors have become net sellers, taking advantage of the higher stock prices to exit their positions. Looking ahead, the potential short-term and long-term impacts of this market trend indicate some caution for investors. Foreign investors face currency risk due to shilling depreciation concerns, leading them to seek profit-taking opportunities amidst price surges. The current volatility in the exchange rate poses challenges for foreign investors, influencing their decisions to exit the market. In terms of specific market sectors, the earnings growth remains a key factor shaping market dynamics. The recent economic survey highlighted positive growth in sectors like agriculture, which grew by more than 6% despite a contraction in the previous year. Investors are closely monitoring economic data to identify sectors with growth potential and undervalued companies. Although most dividend closures for accounts based on the full-year 2023 results have passed, investors are still seeking high-growth companies with resilient earnings and undervalued stock prices relative to their targets. In conclusion, the bullish sentiment in the Nairobi Stock Exchange reflects a mix of positive earnings reports, market valuation dynamics, and sectoral growth prospects. As investors navigate the evolving market landscape, identifying pockets of value and growth opportunities will be crucial for maximizing investment returns.