Genghis Capital, one of the leading investment banks in Kenya on Tuesday released a report predicting that the Nairobi Securities Exchange (NSE) will offer both local and foreign investment opportunities for the year 2020.According to the report, the year presents an opportunity to investors to continue diversifying their portfolios, and post positive returns, in a year that is expected to post mixed economic results.
In a newly released playbook themed, “Harnessing Value”, the analysts note that the return of foreign investors to the NSE in 2019 after two years of massive foreign investor outflow, indicates rising interest in the local bourse as pricing remain attractive.
Kenya is currently trading at discounted multiples compared to its historical average despite last year’s market rally.
The rally bolstered by the banking sector and leading mobile telephone operator, Safaricom in the fourth quarter of 2019, propped the Nairobi All Share Index (NASI) by 18.5 percent to 166.41 points.
It is against this backdrop that the Genghis expects profit taking on most of the counters that rallied last year to depress the equities market in the early part of the year before a general uptick in the market (on depressed prices from profit taking) from the second part of the year.
As at present, valuations are still attractive for some of the counters especially stocks that missed out on last year’s rally despite their attractive prices and strong fundamentals, the Genghis Capital Playbook 2020 reads in part.
“The NSE abounds with value opportunities, including some large cap foreign investor favorites that continue trading at discounted prices. We see value in EABL and KenGen on the non-financials front and KCB Bank on the financial side” the report released in Nairobi further points out.
In the playbook 2020, the research team at Genghis Capital have revealed their new look model equity portfolio, which features momentum stocks, income stocks and value stocks.
In 2019, the three portfolios outperformed the market with returns of 39.2 percent, 38.4 percent and 10.3 percent from the respective portfolios.
This was against the market returns of -6.3 percent on NSE-20 and 18.5 percent from the NASI.
The report further predicts foreign investor inflows will continue supporting the local bourse backed by discounted valuations following on from price correction by profit taking investors during the first half of the year and expectations of higher earnings growth from the key counters.
Overall, Genghis expects the economy to post a slight improvement this year with real GDP growth projected at 5.7 percent attributed to the base effect (GDP 2019E at 5.6 percent) and the sturdy contribution of services to the overall economy.
However, the report points out that private consumption and government spending pose major headwinds to a robust growth.
Headline inflation is projected to oscillate between 5.00 percent and 8.00 percent this year, with food inflation expected to revert to the 2-year average levels of 4.0 percent – 9.0 percent with long rains season (March – May) expected to normalize food supplies.
The subdued global demand is expected to have a positive knock on local fuel pump prices, curbing fuel inflation flare up.
Further, the Kenya Shilling is projected to range between 100.00-104.00 against the US dollar for most of the year, notes the report.