Kenya's equities market review

The equities and fixed income markets on the Kenyan stock exchange are currently presenting a contrast in performance, with the equity market seeing a decline while the fixed income market surges. To gain a better understanding of the forces at play, CNBC Africa sat down with Caleb Mugendi, Investment Manager at Genghis Capital Asset Management. IIn the Kenyan equity market, we are witnessing a significant decline, primarily driven by foreign investors exiting the market. However, there has been a slight uptick in the last few trading days, with foreigners becoming net buyers on some counters. Despite the value present in the market, evidenced by the NSE All-Share Index trading below its historical average in terms of price-to-earnings ratio, there is a lack of catalysts to drive these counters back to their fair values. The absence of such impetus is keeping many foreigners on the sidelines and exiting the market. One key sector worth noting is the banking sector which has seen some companies report their full-year 2023 results. Stanbic Bank, for instance, reported a close to 4% earnings per share growth, accompanied by record profits and dividends. This demonstrates the resilience of companies in navigating the current business environment. Expectations remain high for continued interest in the banking sector as the earnings season progresses. On the other hand, the fixed income market in Kenya has seen a surge in interest, particularly in infrastructure bonds. These bonds are attractive due to their tax-free nature and high yields, with interest rates remaining elevated following the recent Central Bank of Kenya rate hike to 13%. Treasuries like T-bills are offering yields ranging from 16.5% to almost 17%, drawing in both local and foreign investors. Notably, the February issue of the 8.5% infrastructure bond was heavily oversubscribed, receiving bids of close to 280 billion shillings against a target of 60 billion shillings. The high demand for these bonds has led to substantial trading activity in the secondary market, reflecting investors' appetite for fixed income instruments. Looking ahead, investors can anticipate three upcoming bond offerings from the Central Bank of Kenya, including a three-year reopened bond, a ten-year new bond, and another five-year reopened bond. The continued interest in these new issuances is expected to drive trading activity and further boost investor confidence. Notably, the central bank's signaling of a potential decrease in interest rates through the ten-year bond's 16% coupon payment may influence investor bidding behavior. Overall, we can expect a heightened level of interest and aggressive bidding in the upcoming primary auctions, particularly for fixed income securities. The market dynamics indicate a preference for fixed income over equity due to the high interest rates, driving significant flows into the fixed income segment. As trading continues and new opportunities emerge, investors will closely monitor market developments to capitalize on these trends.