The massive foreign investor outflow from the Nairobi Securities Exchange (NSE) in the last two years now presents a perfect opportunity to invest at the bourse because of the low prices, analysts at investment firm Genghis Capital predict.
In a newly released playbook, themed “Embracing Value” the analysts note that Kenya is trading at attractive multiples on the back of a massive sell off in 2018 which saw the NSE 20 share index take a 23.5% beating to close at 2,833 and the Nairobi All Share Index (NASI) decline 16.6% to 86.47 points.
The upside to this is that valuations are now ever so attractive, presenting an excellent entry point for most stocks which previously traded at a premium to intrinsic value, the Genghis Capital Playbook 2019 reads in part.
“The NSE abounds with value opportunities, including some large cap foreign investor favorites that have previously traded at a premium. We see value in Safaricom and Bamburi on the non-financials front and KCB Bank and Equity Bank on the financials side, currently offering great entry points and significant upside,” the report says further.
In the playbook, the research team at Genghis Capital have launched their model equity portfolio, which features momentum stocks, income stocks and value stocks. Investors looking to take advantage of momentum swings should consider Safaricom, EABL, KCB Bank and Equity Bank while those looking for value are advised to purchase KCB Bank, Bamburi and Kenya Re.
Further, if one is looking for income, KCB Bank, Stanchart, Barclays Bank and Stanbic are their best bets, with KCB Bank on the lower side of the dividend yield at 7.4% and Stanchart on the higher side at 8.7%.
According to this playbook, Kenya will be the proverbial eagle in 2019, rising from the ashes of political uncertainty (pre-handshake), a biting credit crunch that stifled private sector growth, constrained corporate earnings growth, poor corporate governance that resulted in the near collapse of retail and manufacturing giants and a massive foreign outflow at the NSE to the tune of USD 292m (KES29.2 billion).
“In our opinion, Kenya looks attractive compared to other African counterparts including Nigeria which is still grappling with forex challenges and upcoming elections that may see a further flight of capital potentially to Kenya,” the report says.
The report further predicts that frontier markets will see increased interest this year given a higher possibility of outperforming both emerging and developed markets, owing to expectations of stronger earnings growth in the former in comparison to the other two. We believe Kenya is set to benefit from capital inflows from dedicated frontier funds as well as frontier and emerging market funds in 2019, it says.