Kenya Investment Outlook for 2H19 – we see select pockets of buying opportunities

Economic Outlook
We estimate Kenya’s GDP to grow between 5.3% and 5.6% in 2019.
We forecast inflation to be within 5.0%-7.5% range, largely on account of food inflation.
We expect the KES to weaken between 3.0%-4.0% against the USD, to KES 104.8-105.9 on a PPP basis. We expect higher food imports and weak agricultural exports to drive the current account deficit to between 5.5% -5.8% of GDP.
We do not anticipate a reduction in the benchmark rate in FY19. We expect demand-supply dynamics to result in some tapering off in the longer end of the domestic yield curve as local institutional investors chase yields between 4 years and 10 years.
Equities Outlook
Going by our market earnings growth forecast of 10.1% and a PE re-rating of 2.5% in FY19F, we forecast the NASI to close 2019 at 158.44, representing a 6.5% potential upside, from the current level of 148.81.
Based on our fair value estimates of equities covering 75.1% of the market cap, we forecast a potential market return of 9.4%.
Recommendations
BUYs on E.A Breweries, KCB bank, Co-op bank, DTB bank and I&M bank
HOLDs on Safaricom, Equity bank, NIC bank.

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