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The Trading Room: Weekly Market Review – Week 12, 2020

Markets suffered another week of steep losses, as concerns deepened over the novel coronavirus and its economic impact. Globally,  Energy stocks remained among the market’s worst performers. Oil prices were extraordinarily volatile but finished the week much lower as Saudi Arabia and Russia pushed through with the oil price war, bringing price levels to lows last seen in 2001. Hospitality and airline stocks were also especially weak, laying bare the evident loss these industries are going to push through into their financial year. Locally, Kenya Airways took the bow and noticed a pay-cut for their employees. CEO Allan Kilavuka said these measures were being taken to ensure that no jobs were lost in the struggling national carrier.

Global markets stocks valuation are tumbling in the wake of the coronavirus-fueled market rout, but determining when equities are cheap enough to buy is turning our to be a very tricky proposition. The S&P 500’s price-to-earnings ratio, based on earnings estimates for the next year, has dropped from over 19 in late February to 14.2 as of Wednesday. The S&P 500 has fallen 28.8% since its all-time record high close on Feb 19 and hit its lowest level this week since early 2017.

While price-to-earnings valuations are a moving target, the extent of the drop has enticed investors seeking a potential bargain, particularly those who can hold stocks for a long time.

The Dow suffered its biggest percentage loss since 1987 and the Nasdaq Composite Index experiencing its sharpest daily decline on record. The sell-off came despite the Federal Reserve’s announcement on Sunday that it would slash the federal funds target rate to the 0.00%–0.25% range and restart aggressive purchases of Treasuries and agency mortgage-backed securities. On Monday, the Cboe Volatility Index (VIX) hit its highest level on record, surpassing its peak during the financial crisis of 2008.

European equities posted sizable losses, as countries imposed lockdowns and economies faltered, raising the prospect of a prolonged recession. However, a flood of fiscal stimulus and further interest rate cuts helped equities claw back some losses at the end of the week. The pan-European STOXX Europe 600 Index fell 1.85%. Germany’s Xetra DAX Index slipped 3.56%, France’s CAC-40 Index declined 2.51%, and Italy’s FTSE MIB Index dropped 0.4%. The UK’s FTSE 100 Index slid 2.78%.

Index Friday’s Close Week’s Change % Change YTD
DJIA 19,173.98 -4011.64 -32.81%
S&P 500 2,304.92 -406.10 -28.66%
NSE20 2025.31 -99.47 -4.68%
S&P MidCap 400 1,257.86 -288.79 -39.03%
Russell 2000 1,014.05 -194.91 -39.22%

 

Local markets started the week prepared for the anticipated sell off from last weeks outflow. Local investors retreated to playing defensive position in the market, mainly focusing on the blue-chip counters, a move which has defended the index from declining any further and also seeing a week without a trade halt as experienced in most global markets. On Monday, local investors held their positions against the foreign investors being the net buyers, an unexpected move that countered foreign investors and brought calm on the markets.

The Nairobi Securities Exchange’s week on week turnover declined by 14.13%, closing at Kes 4.68 Billion, down fro the Kes 5.45 Billion recorded last week. Similarly, volumes traded on the market had a drop, closing the week with 150 million shares exchanging hands, a 20.64 percent decline in volumes as compared to 189 Million shares traded the previous week. Small cap counters were up ahead leading the gainers week as bluchip counters struggled to stay afloat on foreign selling spree. East African Cables topped the week with a 9.36% share price appreciation, at 1.89 shillings per share up from last week’s  Kes1.71. Retailer Nairobi Business Ventures and Limuru Tea, a highly illiquid stock on the exchange followed with 8.33% and 7.95% respectively.

The loosing side seemed to have reflected most on the manufacturing sector with Williamson Tea shedding 15.85 percent in market price and touching the sub 100  zone for the first time. The stock closed at a price of Kes 94.25 per share,from Kes 112.00 last week Friday. East African breweries followed with a 13.9 percent share decline closing at  Kes 159.25 per share as compared to last week’s Kes 185.00. The decline came amidst a cautionary statement the company issued, indicating they will be buying additional shareholding in Serengeti Breweries Limited. Kapchorua Tea Plc, a subsidiary of WTK came in third, closing at Kes. 65.00, a 13.33 percent decline in price from last weeks close of Kes 75.00

As the country enters the second week of the Corona Virus watch, and as the government seeks to take more measures, we are anticipating a possible further decline in prices, mainly in the shares on the NSE20 share index which now risks hitting below the 2000 basis points mark. Companies will begin to shed some light on the economic damage when they start reporting first-quarter results in the middle of April. For a long-term investor who is trying to have some confidence about investing now or hanging in there now, you can see light at the end of the tunnel from a valuation standpoint once you start to look to 2021. With at least a five-year investment horizon, now is a “prudent time to start putting money to work.

Here’s how the NSE Indices performed during the week:

  • The NSE 20 share index was down 99.47 points or 4.68% to settle at 2025.31
  • All Share Index (NASI) shed 0.73 points to settle at 132.93.
  • The NSE 25 Share index shaved-off 113.18 points or 3.39% to stand at 3224.43.
  • The FTSE25 Kenya share index  declined by 4.93 points or 2.68% to close Friday at 179.17

NSE20

The NSE’s Derivative Market [NEXT] closed the week with a total of 65 contracts worth Kes.2.55M transacted. The KCB contract expiring in 19th March 2020 had 29 contracts valued at Kes.1.2M transacted. The market also issued new margin requirements as the March 19th contracts expired on the market. This is an rise in activities as compared to the 16 contracts worth Kes.547,000 transacted the previous week.

The secondary Bond Market registered a reduction in activity with bonds worth Kes.14.6Bn transacted compared to Kes.15.5Bn registered the previous week. The FTSE NSE Kenya Govt. Bond Index closed the week at 96.50 basis points.