NSE bullish run to fade, say analysts
By Rawlings Otini
Analysts remain skeptical on whether the positive growth curve at the Nairobi Securities Exchange (NSE) will hold after the market touched a near 17-year low last month.
The market took a recovery path supported by a favourable earnings call by Safaricom, East African Breweries Ltd (EABL) and banks stocks after President Uhuru Kenyatta urged Parliament to lift the cap on lending rates.
“I think the optimism around a repeal of Section 33(b) of the Banking Amendment Act will continue to give momentum to banking stocks. However, if interest rates go up, that will cool off any run,” said Ecobank head of financial research George Bodo.
Safaricom and banking stocks are the principal movers on the NSE and any factor that affects their outlook has a direct bearing on the whole market.
Bodo said the rally may not be long lived given Kenya’s economic outlook with respect to debt servicing, tax burden and corruption.
The NSE hit rock bottom last month to trade near the lows of 2002 and lower than where it was after the 2007 post-election violence which was followed by the 2008 global recession.
Stock brokers also posted one of their worst years logging loses as activities ground to a near-halt.
Others hinted that bear markets tend to provide opportunities for corporate raiders to plot takeovers as shares become cheaper to shareholders with truckloads of cash.
“Prices have consistently fallen by as much as 15 per cent, which provides opportunities for potential takeovers, but we are yet to hear of one,” said Gerald Muriuki, an analyst at Genghis Capital.
Safaricom’s half-year profit to September 30, soared by 14.4 per cent despite the harsh economic times. The company’s stock rose by Sh2 to Sh30 a share compared to last month.
EABL posted a profit after tax of Sh11.5 billion in the 12 months to June growing from a weaker base of Sh7.2 billion in a similar period in 2018.
Safaricom’s near monopoly and huge margins may explain why it is making double digit growth in profits when companies are laying off staff.
EABL’s 59 per cent profit growth in the year ending June was on account of a weaker performance last season and the management has warned shareholders not to expect similar performance in 2019.
The analysts say that the performance of the stock market normally gives the direction of the economy but the business environment tends to follow after six months or one year depending on the structure of the economy.
A sustained bear market means the economy is headed further into problems that could hurt small businesses and force more out of employment.
The latest financial sector stability report by the central bank shows that most low income Kenyans who bought goods on credit at the nearest shopkeeper delayed or failed to pay. The economy could still head into more trouble if the signals on the NSE are anything to go by, equity analysts observes.