NSE Monthly Market Watch June 2019 – “Local institutions emerge net buyers after 4 months of straight selling”

Equities
On a headline basis, the NASI returned -0.2% month on month largely weighed down by Kenya RE (-0.3%), EABL (-0.1%) as well as the banks (-0.3%). The index was mainly supported by Safaricom (+1.1%). The NASI outperformed the MSCI EFM ex ZA at 6.1% ytd compared to 4.2% ytd achieved by MSCI.
NSE is currently trading at a slight discount of 0.9% to the historical 10 year average of 11.9x.
We estimate pension funds allocation to equities dipped further to 17.1% in the month, on account of a further decline in the NASI. We believe net inflows into equities during June 2019, by pension funds, were not able to offset the decline in portfolio valuations as a result of a weaker equities market. We estimate pension fund assets have grown by 6.8% y/y to USD 12.3bn in June 2019 from USD 11.4bn in June 2018.

Fixed Income
The KES bond curve witnessed a narrower gaps between bids and offers as bidders chased yields down due to positive sentiments on the Kenyan economy both locally and abroad. Treasury Bill auctions attracted high bid volumes due to end year government spending flooding money markets.

The 8yr T bond yielded 11.593% with a cut-off rate of 11.630%, while the 14yr T bond yielded 12.456% with a cut-off rate of 11.630%. Treasury managed to raise a total of KES 38.9bn from the auction, which offset KES 36.9bn in bond maturities.

In the twelve months of FY18/19, we estimate that Treasury has borrowed ~KES 253.1bn versus ~KES 300.5bn (down 15.8%).

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