Bank stocks set to drive NSE Bull Run

The large capped banking sector stocks are set to drive the recovery in stock valuations at the Nairobi Securities Exchange (NSE) with analysts holding out for a bullish run this year.

This is as the equities market is projected to mark key dividends from the projected improvement in the macroeconomic out turn along the taunted double digit growth in corporate earnings by the close of 2020.

“The expectation of higher earnings growth for 2020 is mainly due to the anticipation of improved earnings from commercial banks buoyed by increased lending and asset growth, due to the repeal of the rate cap law,” noted analysts at Cytonn Investment.

From November’s repeal of interest rate caps through the enactment of the 2019, Finance Act into law, banks are set to carry a more weighted net interest margin scope based on the freed up credit pricing regime.

Further to corporate earnings, the present low stock valuations are expected to offer attractive entry opportunities for medium and long-term investors with the domestic equities market set for a reversal to flight to risk-free portfolio investing.

Global volatility to the favour of emerging markets has provided for further impetus to progress in the NSE’s equities counter as developed economies fall victim to trade wars and geo-political tensions to end in a trim to growth prospects by the pair of the International Monetary Fund (IMF) and the World Bank.

The projected bullish NSE run is further anchored on monetary policy easing by the Central Bank of Kenya (CBK) which is set to underpin credit recovery to the private/corporate sector.

The NSE equities market which is more than three quarters defined by foreign investors remains among the most attractive counters on the continent having represented the highest grossing counter in 2019 with an 18.8 percent growth rate ahead of South Africa and Uganda.

Foreign inflows during the year came in at Ksh.1.8 billion to reverse outflows totalling to Ksh.43.1 billion in 2018 and an accompanying 12.9 percent slump in equities turnover as the banking stocks spared the NSE blushes after registering a rally in the post interest rate cap environment.

Equity Group, KCB, NCBA, Barclays and the Cooperative Bank made for the notable bank stocks in the second half of 2019 and remain among the top bet stocks at the start of the year.

The NSE presently carries a price to earnings (P/E) ratio of 12.1 times with a forward looking P/E of 10.8 times to present a potential upside of 23 percent in comparison to historical levels.

The NSE all share index (NASI) is presently trading at a P/E ratio of 12.1 times, 9.1 percent below the historical average of 13.3 times.

Equities in emerging and developing markets such as Kenya’s held their own against their global counterparts in 2019 with the MSCI Emerging Markets Index listed on the New York Stock Exchange (NYSE) registering an 18 percent growth in the year to outpace growth in the London Securities Exchange-FTSE 100.