The State of the Nairobi Stock Exchange NSE

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The State of the Nairobi Stock Exchange (NSE)

• Chris Mwebesa
• Chief Executive
• Nairobi Stock Exchange
• BMDI Luncheon
• Monday 3rd November 2008

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Table of Contents

• Market Performance Overview
• State of the Market and outlook for the Market

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Market Performance Overview
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• Kenya is part of an increasingly integrated
  global economy and the effects of the financial
  system turmoil in the United States and Europe
  are bound to have an effect, albeit a lagged one
  on emerging and frontier markets including ours.
• Markets more closely linked to the United States
  and Europe such as Brazil, China and India,
  Mexico, South Africa and Russia have already
  responded quite sharply as commodity prices of
  coal, oil, copper, and uranium have dropped due
  to expected slower demand for these inputs from
  developed economies as depicted in the next
  slide.

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Performance of Global Benchmark Equity Indexes
End Dec. 2007 30 Oct. 2008
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State of the Market

• The NSE 20 Share Index has fallen 1983.49 points
  to 3183.69 points (38.38 ) year to date.
•  This is both a global and regional phenomenon

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NSE 20 Share Index Mkt. Cap. Jan. 2002 30
October 2008
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State of the Market and Outlook of the Market
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State of the Market

•  The fall can partly be attributed to the
  withdrawal of foreign investors from the market
  to more safer investments such as government
  securities denominated in US dollars.
• Foreign participation has in the past constituted
  an average of 18-20 of Market Activity. Since
  June 2008 when the current bear run started this
  has risen to 55 in September.
• Foreign participation has historically been net
  inflows but since June has been net outflows

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State of the Market

• Local investors have also sold securities as
  rising inflation and the resultant higher
  borrowing costs have impacted negatively on their
  disposable income.
• The following table depicts these trends.

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TRADES IN 2008 WITH BREAKDOWN OF F0REIGN/LOCAL
PARTICIPATION
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State of the Market-Outlook

• Economic prospects remain positive
• Crude oil prices have fallen 55.13 from a peak
  of 147 in July 2008 to 65.96 per barrel on
  Thursday 30th October 2008
• Locally the Government has moved to reduce taxes
  on energy consumption(35 reduction in
  electricity bills across the board) and regulate
  oil pump prices
• Locally the supply of fresh produce shall resume
  more normal levels as the impact of the current
  rains is felt.

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State of the Market-Outlook

• Economic prospects remain positive
• The depreciation of the Kenya shilling makes our
  agricultural exports more competitive and Kenya a
  more affordable tourism destination.
• As such earnings prospects for listed entities
  should remain robust as depicted in the latest
  earnings announcements of the following selected
  20-share index constituent companies.

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REPORTED EARNINGS FOR SELECTED COMPANIES IN THE
NSE 20 SHARE INDEX All remain profitable
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State of the Market-Outlook

• Market Valuations are now more realistic.
• The PE valuation of the market has been the
  subject of numerous debates
• Though historically high (22) compared to the
  JSE(15) and CASE(12) perhaps appropriate for a
  pre-emerging market
• However this has re-rated significantly to 11.44
  as of 23rd October compared to 19.81 at the very
  beginning of the year
• Therefore now presents an opportunity for bargain
  purchases across solid counters.
• This is clearly depicted in the following table.

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Market P/eP/E VWAP divided by EPS
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State of the Market-Outlook

• Trading volumes remain very low indicating that
  there is no major sell off as such. Most
  investors holding onto their positions. We expect
  a bottom out soon.

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• Chris Mwebesa
• Chief Executive
• Nairobi Stock Exchange