The recent sell-off that took down the NSE 20 share index below the 4,800 level last week marks the beginning of another bear charge.
Already, the 7.7% drop in the benchmark index this year has spooked many investors into a search for safety. Sector performance can easily tell us where investors’ safe havens are.
Over the first half of the year, agricultural stocks have emerged as the biggest beneficiaries of this sector rotation, up some 46% this year.
Lending additional support to the rise in agricultural stocks is the depreciation of the shilling. As the local unit has taken a hit against the US dollar, tea and coffee exports have increasingly become lucrative.
Commodity bulls are also banking on the fact that the greenback may continue to rise. Furthermore, with oil prices falling, commodities across the board are declining in price regardless of their unique fundamentals of each.
This will keep some downward pressure on all commodity prices. Currently, tea prices are up 40% at the Mombasa auction to $3.5 (Ksh350) per kilogramme. On the contrary, investors have aggressively been pulling out of cyclical stocks such as Longhorn Publishers and Kenya Airways which has led to a loss of 22% in combined value for the commercial and services market segment, so far the worst performing sector.
The insurance sector, which is the second best performing market segment, is up 8.4%.
This is rather unusual since insurance stocks are not known for their defensive qualities for the simple reason that a considerable portion of their investment holdings is tied to the market.
Hence, a decline in market prices should have a negative effect on their earnings.
SEE ALSO: REGIONAL STOCK MARKET REGULATORS TO ENHANCE COOPERATION
Anyway, a closer look at the six listed insurance stocks reveals a different picture. Jubilee’s stellar performance has more than “insured” the sector from shame. Their closer cousins, the banks, are however lagging the overall market with a total loss of 8.9%.
A look into utilities and energy stocks, which theoretically should benefit in a downward cycle, reveals instead a loss of 11%. These stocks have underperformed the market by three per cent over a six-month period.
Manufacturing and construction stocks, on the other hand, have suffered a combined loss of 13%. The investment segment, comprising shares such as Centum and Olympia, is down eight per cent in the year to date.
Stocks on the GEMS have maintained their valuations at a slight dip of 0.2% while telecommunications companies represented by Safaricom are up 13%. The NSE, which represents the investment services segment, is down 5.8% while the automobile segment is also down 10%.
Sector rotation trends show that two out of the 12 market segments are in the green, making portfolio protection a priority. Investors searching for safety are better off in cash in this environment.
NEXT READ: OBAMA FAMILY HAS KSH55,000 FROM FATHER’S LIFE INSURANCE
Mwanyasi is founder and chief executive of Canaan Capital Limited. (This article was first published in Business Daily)
Leave a comment