Nairobi: Week ended August 6, 2010

Global and local market conditions

US, South American, European and Asian equity markets rose mildly in the week largely driven by positive economic news in Europe which mitigated the negative jobs report released by the US government. The Nairobi Stock exchange leaped; most counters gained strongly before and after the August 4^th 2010 constitution referendum vote. The NSE 20 Share index rose by 5.31%, the Nigeria All Share, and the Ghana All Share indexes fell by .36% and 2.16% respectively. With the referendum elections having been concluded peacefully, a goodwill rally is expected in the upcoming weeks. The low interest regime in Kenya is another factor that is working in favour of Nairobi’s equities. The one year Treasury bill rate at the latest auction was 4.11 %( Central Bank of Kenya): the lowest in recent history. Ghana’s interest rate for a one year Treasury bill at the most recent auction was 13.50% (Bank of Ghana). The low interest rates in Kenya will reduce the borrowing costs of companies which should in return boost their profitability and incentivize them to invest more.

Price movements of select commodities

Tea +5.73%, Sugar -7.93%, Coffee (Arabica) -4.48%

NSE Share price movements

Gainers

Eveready +18.18%, StanChart +17.72%, NIC Bank +13.92%, Jubilee Holdings +13.79%, Centum +13.64%

Losers

Pan Africa -6.62%, Kakuzi -5.49%, Eagards -4.00%, EA Portland Cement -2.44% , Crown Berger -2.10%

Eveready

The huge price swing in this counter is largely because it was starting from a very low starting point during what has been a huge upward swing for the stock market as a whole. The share closed at only at Kshs 4.55; small changes in cent value will lead to a huge swing in price percentage change on this counter. The fundamentals of this counter are not strong considering the trend towards use of solar and grid electricity in Kenya. The battery business faces stiff competition from cheap Chinese imports.

Standard Chartered

The strong rally from the previous week persisted into this week. The movement on this counter is now more of a momentum rally with additional investors jumping onto the bandwagon of a rapidly rising stock. At the current price Stanchart is now the most expensive banking stock and thus is relatively overvalued. StanChart’s market capitalization is now Kshs 81 Billion; Kshs 23.5 Billion more than for close peers CO-OP bank and KCB (assuming full take up of rights at current prices). CO-OP and KCB have a larger branch network, more deposits and a larger loan book than StanChart. The valuation differential between StanChart and those two banks is not justifiable.

Quote of the Week:

When you see clouds gathering, prepare to catch rainwater. - African proverb Gola Tribe