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Recent Topicals

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Cytonn Annual Market Outlook - 2018

Feb 4, 2018

In 2017, the Kenyan economy remained resilient, despite a challenging operating environment, expanding by an average of 4.7% for the first three quarters of 2017, compared to an average of 5.7% in a similar period in 2016. The Kenya National Treasury, World Bank and IMF cut their 2017 GDP growth projections to 5.5%, 4.9% and 5.0% from 6.0%, 6.0% and 5.7%, respectively, at the beginning of the year, citing (i) slower growth of the agriculture sector, which grew by an average of 1.9% in the first three quarters of 2017 compared to an average of 5.0% in a similar period in 2016, following the prolonged 2016/17 drought, (ii) the interest rate cap, which led to a reduction in corporate earnings for commercial banks with EPS growth for Q3’2017 at negative 8.2%, compared to positive 15.1% in Q3’2016, (iii) political uncertainty during the year, and (iv) low private sector credit growth, which has averaged 2.4% in the first 10-months to October 2017 compared to a 5-year average of 14.4%. De...

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Why Stock Indices Performance Differ; A Case Study of NASI vs NSE 20

Jan 29, 2018

During the year 2017, the Kenyan equities market recorded strong performance with NASI, NSE 25 and NSE 20 gaining by 28.4%, 21.3% and 16.5%, respectively. This performance was driven by gains in large caps such as DTB, KCB Group, Safaricom, Equity Group and Co-operative Bank, which gained 62.7%, 48.7%, 39.7%, 32.5% and 21.2%, respectively. Looking at these indices an investor then wonders which among them is the right measure of the market performance. In this write-up, we seek to lay out what causes the discrepancies in returns and then conclude by pointing out what really is the best benchmark for investors to use when measuring performance. Introduction: An index is a statistical indicator or a measure of performance. According to FTSE Russell, a stock index is a group of securities chosen to track a particular investment scheme such as a market, asset class, sector, industry, or even a strategy. The collection of securities that make up the index are known as the ...

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Nyeri Real Estate Investment Opportunity

Jan 21, 2018

Over the last few years, we have been investing in the Nairobi metropolitan area. We however continuously do research in the other regions to see in what places we can undertake investments and developments on behalf of our investors. Our Real Estate Research & Deal Origination (RDO) team spends time in the target market, collecting and analyzing data to make the best investment recommendation both for our own proprietary use and to inform the investors of the trends in the markets. As such, and in line with our regional expansion strategy, we have been carrying out research on various markets across the Kenyan Counties. Currently we have covered 13 Counties, among them being Laikipia, Meru, Mombasa, Kisumu and Uasin Gishu. We have chosen Nyeri County to serve as the Mt. Kenya Regional Office due to its centrality in the region. We also target to open offices in other Counties such as Kisumu, Mombasa, Nakuru and Uasin Gishu as they remain attractive from a macroeconomic perspect...

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The Total Cost of Credit Post Rate Cap.

Jan 15, 2018

Following the recent headline on the Business Daily on the total cost of credit at 19% compared to the legislated cap at 14%, we: revisit the topic on interest rate caps by a general overview, have a look at initiatives put in place to make credit cheaper and more accessible, assess the impact on private sector credit growth, and, analyse the true cost of credit and what more can be done (see here for the Business Daily article). Section I: Revisiting the Topic on Interest Rate Caps by a General Overview We have already done four previous focus notes on the topic, namely, Interest Rate Cap is Kenya’s Brexit - Popular But...

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What Real Estate Bubble?

Dec 24, 2017

We first wrote about the commonly discussed topic of a Kenyan real estate bubble in our Focus dated March 2017, and titled ‘Is there a Real Estate Bubble in Kenya?’ It touched on characteristics and conditions precedent for a bubble, and also reviewed the United States and Ireland as case studies, concluding that the Kenyan market is not experiencing a bubble but the normal real estate cycles of rising demand, peaking market, falling market then bottoming out, and the rapid price increments witnessed were a result of low supply and high demand. We revisit the matter this week as we come close to the end of 2017, to evaluate the metrics, consider additional case studies, and review if our previously arrived at conclusion still holds. We start by defining a bubble and look at previous examples of major real estate bubbles globally, in the Baltic States, United States and Spain, focusing on the causes and how t...

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