The Nairobi Securities Exchange (NSE) 20 Share Index closed last year at an enviable 19.2%, settling at 4,927 points. Similarly, investors’ wealth rose from Ksh1.27 trillion ($14.7 billion) to Ksh1.92 trillion ($22.2 billion)—an equivalent of 51.2%. With government debt and real estate yielding an average of 8.2% and 6% respectively, equities easily became the top performing asset class.
Therefore, with an average inflation of 5.7% throughout last year, it means equities gave the best return in real terms. Persistent foreign investor interest, falling interest rates and general favorable economic conditions are some of the main factors that supported the rally. Notwithstanding the heightened political tension early in the year and the almost 100% rise in overall inflation, the market proved to be more robust than expected.
The top five counters, Centum Investment Company, British American Investments, CFC Insurance, Pan Africa Insurance and Safaricom, all doubled in price within the 12-month period on the back of stellar returns. Laggards of the year included Mumias, Kenol Kobil and Scangroup, which all lost more than 25% of their value due to difficult operating environments and negative sentiment. Safaricom became the first NSE-listed company to rise to a capitalization of Ksh400 billion ($4.6 billion) when its share price went past the Ksh10 mark for the first time.
Foreign investors piled into big caps like East African Breweries, Bamburi Cement, Equity Bank and KCB Bank, as appetite for African equities improved. The Capital Markets Authority (CMA) now indicates that foreigners account for 22.4% of investors’ holdings, up from a low of 7.9% in 2008, according to its third quarter Statistical Bulletin 2013. This group now averages 50% on investors’ monthly participation in the market. Net cash inflows from this investor category for the nine months ending last September amounted to Ksh22.6 billion ($262 million), almost matching the total sum for the full year in 2012, which stood at Ksh21.7 billion ($251 million).
NSE saw its total listings go up to 61 following the listing of Home Afrika, a real estate developer which joined the market by way of introduction. The firm floated 405 million shares on the NSE’s Growth Enterprise Market Segment. There were no delistings during the year. CMC Holdings remained suspended, pending the resolution of corporate governance issues and a take-over bid by the Al–Futtaim Group. Access Kenya and Rea Vipingo were also suspended from active trading following take-over notices.
This year the market is poised to keep up with the trend of the overall economy, in effect setting the stage for the continuation. The former major resistance at the 5,000 level may soon turn into a support area, especially if first quarter numbers are solid. The country is projected to grow by 6.2% this year according to the International Monetary Fund (IMF), an improvement from 5.9% in 2013 and 4.6% the year earlier. However, IMF’s managing director, Christine Lagarde, warned that the gradual tapering of the United States monetary stimulus program in coming months could temper equity returns and massive outflows could ensue as a result.
Nevertheless, one of the sectors expected to do well is the energy sector owing to the confirmation of higher amounts of recoverable oil, over and above the 300 million barrels so far reported; a scenario likely to spur additional capital expenditure into the country. In this regard, Transcentury is best placed to attract investor attention as it is the only listed stock closely involved in oil and gas exploration. Civicon, one of its important subsidiaries, was recently awarded a lucrative contract involving the building of supporting infrastructure around oil exploration blocks in northern Kenya.
Other sectors anticipated to deliver good returns include the banking and consumer sectors according to risk and research firm Stratlink Africa. It argues the two sectors will experience robust growth, fueled by increasing demand for financial services and technology, especially in the mobile banking arena. In this regard, Kenya Airways, Cooperative Bank, NIC Bank and Barclays Kenya provide a potential hunting ground. However, the firm cautioned that there is risk to this outlook, stemming from the uncertainty surrounding the International Criminal Court cases against the president and his deputy.
Nonetheless, the market multiple stands at 16, meaning there are opportunities to be found. I therefore would like to wish all the bargain hunters out there all the best investing in 2014.