5 reasons why YOU should buy Kenyan stocks NOW!

Every so often, a unique opportunity arises in the stock market—a moment when getting in at the right time can truly pay off. While the saying goes that 'time in the market beats timing the market', there are rare exceptions to this rule. Over the past 4-5 months, Kenyan stocks have been trading at bargain prices as many investors flocked to the safety of bonds. But the tide is turning, and the buzz is building—investors are eyeing the stock market once again.

Let me tell you why we're bullish on the Kenyan stock market and have been buying up cheap stocks over the last few months.

1. History

As investors, our job is to predict the future; and that is one of the main purposes of the financial markets—to give investors & traders a place where they can express their opinions about the future and either make money when they're right or lose when they're wrong. That's why a company might have a great quarter or year but see their stock price drop(this never made sense to me as a teen, but after understanding that the price of the stock reflected investors' sentiments about the company's future, it all made sense).

We can make use of historical data in our model to form an opinion of what the future holds for a given company. One pattern that seems to repeat itself is that stocks tend to rally around the time when the company is about to announce earnings results. The reason behind the rally is fairly simple; investors are usually anticipating a good earnings report and future outlook.[Just to clarify the stock rallies only if investors are expecting good news]. Certain companies will see this rally for other reasons. A great example is dividend stocks which will see their stock prices increase due to the simple fact that investors want a dividend.[You'll see a sudden drop in the stock's price, right after they close their share register for dividend payouts].

Based on this pattern, most dividend stocks should see their stock price go up in the coming months. An example of this in action is BAT Kenya, they are known for their generous dividend, having paid out a final dividend of KES 45 for FY23. Their stock currently sits at KES 372 [a bargain if you ask me], I'd been watching it and recommending a buy from its low of KES 330 back in Aug 2024. So as you can clearly see, the stock began its rally months ago and is poised to continue in the same tragectory.

2. Trouble in bond-land

When the Kenyan government was offering 16+ percent in bond yields not so long ago, a lot of capital left the stock market for the bond market, investors looked at the bonds as a safer investment. And as you know, the words—low risk, high return—are music to any investor's ears. However, recent events have made investors re-think their strategy.

The downgrade of Kenya's sovereign debt was the first of many dominoes to fall. It came as a result of the government's inability to raise taxes in order to service existing debt, after nationwide protests against tax hikes left the government's hands tied. Foreign investors who are in touch with global affairs saw what was happening and some decided to start offloading their bond holdings due to the uncertainty and general unrest in the country.

Something else happened, that wasn't as widely covered, the government proposed that institutional investors be barred from investing in specific lucrative government bonds. I wrote an article on this, and it was quite a head-scratcher for most retail investors. Why would the government propose that all key institutions be barred from buying bonds that the same government was issuing? We had sold off our entire bond portfolio long before this happened and that proposal was confirmation that something was amiss.

3. External factors

Now, Kenya doesn't exist in a bubble, we are a player in a global system and other players' actions usually have an effect on us. [The degree to which we are affected may vary based on a plethora of factors one being which player acted.]

The Federal Reserve cut interest rates by .25%. This is good news for foreign investments. Lower interest rates reduce the cost of capital and make it more difficult for investors to find great opportunities, since money is cheap. Some investors (with a high appetite for risk) will go out looking for opportunities with better returns elsewhere. In their quest for great opportunities, and flush with cash, they are sometimes willing to pay a premium to get in on the action.

The American people have elected Mr. Trump and there's a palpable sense of optimism, you can feel it in the air. The American financial markets have reacted positively to his re-election and according to some investors, the market had even predicted his win before Nov 5. His pro-business policies and approach should take the stock market to new highs. His protectionist stance, however, is bound to negatively affect major partners(Kenya's not one of them), should he choose to go ahead and implement some of the protectionist policies.

4. Performance

I look at HY results as a guiding star when analysing a company, and recent HY results which I covered through a couple of articles seem promising. I covered, quite extensively, the HY earnings results for a few companies that I was analysing[primarily banks], and if the numbers reported are anything to go by then investors should expect FY results that are just as good.

KCB led the pack, announcing 86% year-on-year growth in profits. Their share price had taken a hit after a terrible FY23, but Mr. Russo has managed to turn the ship around in record time. I bought a couple shares early last year and was up 62% by July. The stock was undervalued in my opinion at that point, their FY24 results are bound to be exceptional.

Subsidiaries open in other markets are also pulling their own weight, I wrote an article on this and highlighted how we are seeing growth from other markets after companies that saw the potential made bets that are already paying dividends. While Kenya's economic outlook has been murky for 2024, our neighbors have seen growth and companies that invested in those markets should see returns on their investments.

5. Optimism for 2025

2025 is shaping up to be a great year for investors; Chinese stocks have rebounded, Trump's "drill baby drill" motto should lower energy prices and the pro-business administration paves the way for a lot of deals to be done.

Paul Tudor-Jones[a successful American investor] has said in the past that,

the current stock price reflects the future value and investors should ask whether the current price will be great value for money 2 years from now.

According to this advice we might be late, however I believe that we're still in the early stages of a rally and there's still money to be made in the market. I recommended building up a position in specific companies late last year[start of Q4], and the short-term performance has been good.

How great is the opportunity?

It(short-term performance) has been so good that we decided to raise a fund. Yes, something we have never done in the history of our firm, having only managed our own capital. We are raising $20 million[KES 2.6 billion], and will be closing the fund by the 25th of January 2025. If you'd like to be a part of this, then simply get in touch with us, you can reach me through my email address—me@kenjunior.com and we can set up a meeting with our manager.

Bottom line

Whether you invest with us or not, the bottom line is that you should buy some stock, regardless of the amount; it could be a million, five, ten or a hundred. Just get in the market, talk to your broker and buy something: BAT, NCBA, ABSA or anything that you think has potential upside.

These are my opinions and not financial advice, talk to your advisor before making any financial decision.