It just may be time for you to invest!

1. Bulls vs Bears
The Nairobi Securities Exchange has had a rocky start in 2022, similar to most other regional and
global stock exchanges. Most of the market information has focused on this decline in equity markets.
More so, investors have learnt that such dips in the stock markets present opportunities to invest in
fundamentally strong companies at very low prices. However, declines or dips don’t necessarily last
forever. Opportunities to buy stocks cheaply don’t last for long.
Factors that have impacted the global equity market performance have varied based on different
dynamics of markets; from the Russia-Ukraine conflict to increased rates on fixed income securities.
These factors may explain the decline in equity market performance.
For example, the US Federal Reserve Bank (Fed). began raising rates to counter inflation in 2022. As a
result, investors fled the highly unstable equity markets which led to massive declines in equity
prices. As at 17th Jun 2022, the S&P 500 and the Dow Jones Industrial Average (DJIA) were at their
lowest level for the year having shed 23.39% and 18.3% year-to-date (ytd) respectively. This trend was
also observed across most equity markets around the globe, including the NASI and NSE 25. The 27th
of June 2022 saw the lowest points in the year for the NASI and NSE 25 which had declined by 30%
and 27% respectively. This is known as a bear market. In London, the FTSE All Share Index hit its
lowest point for the year on 5th July having lost 8.8% ytd, to close at 3863.91.
After a subdued performance largely in the first half of 2022, stock indices surged in July 2022.
According to analysis from the U.S, there has been an upbeat in investor sentiment that has been
sparked by key data showing the U.S economy remains resilient and inflationary pressures could be
turning the corner. July 2022 expectations of sharp upward revisions of interest rates (by 1%) by the
Fed were cut short when it instead announced a 0.75% increase, citing possible reduction in the pace
of rate increases going forward due to improvement in inflation conditions. However, as far as the
global macro-economic landscape goes, we are not yet in the clear. Certain challenges still remain
eminent such as possibilities for recession or stagflation in the US, UK and Europe.
JULY 2022
MONTHLY REPORT
THE TIDE MIGHT BE CHANGING - OPPORTUNITIES IN
SHARES

2. In July, the S&P 500 and the DJIA rallied 9.11% and 6.73% respectively. Similarly, in the NSE, both
NASI and NSE 25 gained 13.32% and 10.88% respectively on the same month-to-date basis. From the
5th of July, when the lowest price in the year for the FTSE All Share index was recorded, to 29th July
2022, the index recovered 6.29%. What is clear from the turnaround in stock prices in July is that
investors took advantage of the lower stock prices. July is being observed as the turning point for
most markets in general as shown in Figures 1, 2, 3 & 4 below. Technically speaking, what is observed
from these charts is that from the month July, prices are closing at higher-lows, unlike earlier on in
the year where they were closing at lower-lows. This is also a suggestion towards a trend reversal.
Figure 1: Declining path of S&P 500 before July and a subsequent upturn in July 2022.
Figure 2: Declining path of DJIA (Dow Jones Industrial Average) before July and a subsequent upturn in
July 2022.

3. Figure 3: Declining path of NASI and NSE 25 before July and a subsequent upturn in July 2022
Figure 4: Declining path of FTSE All share before July and a subsequent upturn in July 2022
What Else is Supporting the Turnaround in Stock Prices?
It might also interest one to know that most companies announce their quarter, half and end of year
earnings around this period. Company earnings came in with a cocktail mix of both performers and
non-performers. Some of the US companies that reported positive results above expectations were
Apple, Amazon, Chevron, Starbucks and Exxon while companies such as Intel and Roku fell short of
investor expectations.
Bringing this closer home, BAT announced its half year results on 19th June, where it reported an
8.41% y/y increase in earnings after tax and an interim dividend of KES 5. This saw its price
subsequently surge upwards 7.91% in July on a month to date basis, as investors sought to buy into the
counter. (See Figure 5)

4. While prices on certain counters might have appreciated upon announcement of earnings results,
because of performance and dividend relevance, our data shows that price rallies had already begun
in other counters way before earnings results were announced, and that did not affect or change price
direction. Apple for example, announced financial results for its fiscal 2022 third quarter ended June
25, 2022 where it posted a quarter revenue record of $83.0 billion, up 2 percent year over year.
However, its price had already begun rallying as early as 16th of June 2022. (Figure 6)
Figure 5: Declining path of BAT share before July and a subsequent upturn in July 2022.
Figure 6: Apple price rally begun in June 2022 after a massive decline throughout the first half of 2022
Safaricom, for example, had no earnings announcements in June or July of 2022, as it had already
made its announcement in May 2022. Its rally is therefore not attributed to earnings and dividend
excitement. The lowest price for Safaricom in 2022 was KES 23.10 on 24th of June 2022, by which
time it had declined 38.70% ytd. However, its price has recovered from that lowest point, to close July
29th at 29.95 recovering 29.65%. (Figure 7)

5. EABL was rather a blend of both factors. The company marked its 100th year in existence in style,
announcing an impressive 123.7%y/y growth in profit for the year and a final dividend of KES 7.25 per
share on 27th of July 2022. This saw its price spike from KES 140 to KES 155.25 by close of business,
29th July. However, the price had already begun its recovery path from the lowest point of KES 110
recorded on June 27th. (See Figure 8)
Figure 7: Declining path of Safaricom share before July and a subsequent upturn in July 2022.
Figure 8: Declining path of EABL share before July and a subsequent upturn in July 2022

6. What is the Take Home Point From This?
It has been mentioned frequently that declines in stock prices present opportunities for investors to
buy stocks at low prices. The caveat to this is that stocks are not always available at low prices.
The reality is that stock markets operate in a fast-changing environment. The world of finance is
highly interconnected and rapidly changing. As such, low prices for shares reported in April or June
of 2022 may no longer exist now and in the future.
We are at a point in time where stocks that are fundamentally strong in performance or asset quality
have begun to rally from their lowest points in the year, positions which, if investors did not buy in,
may never be witnessed again. With examples such as Apple, EABL and Safaricom, prices have
shifted from their previous downward trends to sudden upturns, and this is not being instigated by
investors chasing dividend returns.
For most of the counters, investors who already bought in could already be reaping capital
appreciation profits off them. For those who have not, there are two ways to look at it. First, looking
at the bigger picture, market downturns come and go. Over the longer term, investing and staying
invested rewards investors because most bear markets don’t last for long, and even if they do, the
subsequent recovery more often than not surpasses the magnitude of the decline. The NASI rose
from a level of 102.8 in 2012 to a high of 185.7 in 2021 despite downturns in 2017 and 2020. (See
Figure 9) 2022 is another year where NASI marked low points, which presents an opportunity for
investors to get into the market.
Figure 9: NASI has risen from level 102.8 in 2012 to a high of 185.7 in 2021
Secondly, one can invest to take advantage of dividends issued on shares bought. Dividends can act as
a source of passive income for an investor. One way of assessing which stocks to invest in for
dividends is by looking at the dividend yield. The dividend yield is a stock’s annual dividend
payments to shareholders expressed as a percentage of the stock’s current price. This number tells
you what you can expect in future income from a stock based on the price you could buy it today,
assuming the dividend remains unchanged. Examples of stocks with high dividend yields are:

7. Counter Dividend Yield
Stanchart 14.0%
BAT 12.3%
NCBA 11.7%
Kapchorua Tea 10%
Kenya-Re 9.8%
As observed, stocks seemed to have hit their floor in June and rebounded in July as investors sought
to take advantage of the low prices on fundamentally strong companies. In our view, we are still
seeing a lot of opportunities in the current stock prices especially for investors who want to grow
their wealth over the long-term. There are still risks facing the global economy in the short-term,
however, the best opportunity to invest in shares usually happens during bear markets like the one
experienced this year.
Caveat
The World of Investing can be a jungle, at every turn Amana Capital is here to assist you as you build
your wealth through investing in shares.
FA Jesse Ludenyo| Research Analyst
Amana Capital Limited. Growing A Financially Prosperous Community
Unit Trusts | Wealth Management | Pensions
[t] +254 20 235 1738/41/42 [m] +254 71818 7437
Saachi Plaza Block C 2nd Floor, Argwings Kodhek Road, Kilimani
PO Box 9480 Nairobi 00100 Kenya

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