We’ve gone past the worst and stocks can only move northwards in the New Year

This year promises to be an interesting one. Hopefully, the election is behind us and one can look forward to a more stable and predictable year.

The Nairobi Securities Exchange is likely to be vibrant with the foreign counters showing a rebound. Depending on how inflation goes, bond trading is also expected to be active. However, if inflation stays below the 6-8 per cent range, the stocks are likely to have a good year.

In this regard, which stocks are likely to do well and why?

First, consumer goods companies are likely to do well relative to 2017. Hopefully, there will be a full year of sustained, uninterrupted consumption.

Also assuming the government carries through with elimination or reduction of school fees, there will be slightly more disposable incomes available and that will be a boon to consumption.

UCHUMI

I would, therefore, bet on EABL, BAT and Uchumi. The supermarket fortunes will, of course, depend on getting a strategic investor to ensure it is fully-stocked and takes its share of the gap left by the fast-fading Nakumatt. Uchumi appeared to have taken the first step by stocking up for Christmas.

Tourism is likely to do well, too. In spite of prolonged electioneering, tour-related businesses have still had a relatively good year. 2018 promises to build on that momentum.

Many companies have their bookings for 2018 already in the bag. Improved infrastructure across the country will also spur growth in domestic tourism. For this reason, I will put a bet on Serena hotels as a key stock to watch for 2018.

Are we likely to see construction re-bound? The answer is yes. This will not only be driven by government projects but the private sector as well.

Other investors are likely to come out of the ‘wait and see’ attitude and complete old projects or start new ones. For that I would think that companies like Bamburi and ARM are likely to do well on the basis of increased demand for cement.

ECONOMY

With an economy that will generally do well, portfolio investors are also likely to do well. Companies that have invested in various industries like Centum are likely to do better with a caveat on their banking investments.

Banks may be the dark horse of 2018. Having had a full year of the interest rate cap in 2017, they are likely to show ‘growth’ over 2017 but will still likely be below their 2016 performance. However, they continue to pile pressure for the lifting of the cap and if this happens, they may be the surprise great performers of 2018. For the moment though, it is unlikely that any bank will have a dramatic performance this year.

Will insurance companies take the share of financial investments by portfolio investors wary of banks? This may be too early to tell but they certainly did not appear to benefit from the capital flight from banks’ shares in 2017.

The aviation industry will continue to see recovery globally. A KQ stock rebound will be a story that will dominate conversations for a long time.

STOCK

However, has the stock appreciated enough? 2018 will start seeing the fruits of the airline’s reorganisation, but it is unlikely that it will lead to much greater appreciation of the stock than its current major jump has put it.

Media will be an interesting counter to watch. The two companies quoted in the stock exchange will be unveiling new CEOs, probably in the first quarter, and I am sure each will hit the ground running to show early results. The liberalisation of airwaves, however, reduced the barriers to entry into television.

This, and the onset of telecoms as content drivers, will continue to drag the media stocks. However, the one who drives profitable innovation early will guarantee a good stock in the medium term.

One other external factor that will have a direct bearing on stocks is the direction the shilling takes against the US dollar. A rapidly depreciating shilling will invite lots of foreign buyers as it will mean cheaper shilling-denominated stocks. The converse will also be true.

My sense overall is that buyers of stocks earlier in the year may have reason to celebrate around Christmas of 2018. I expect someone will remind me about this when sending next year’s Christmas messages.

 Mr Gitahi is the chairman of AIB Capital. [email protected]