Thinking of stocks? Put your money here, thank me later

The year 2018 promises to be an interesting period. The elections razzmatazz, I hope, is behind us and we can finally look forward to a more stable and predictable year.

The Nairobi Securities Exchange is likely to be vibrant, with foreign counters showing a rebound.

Depending on how inflation goes, bond trading is also likely to be active, and if inflation stays below the six-to-eight-per cent range, the stocks are likely to have a good year. But, which stocks are likely to do well, and why?

First, I think consumer goods companies will do well relative to 2017 if there is sustained, uninterrupted consumption.

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

I, therefore, put my money on East African Breweries Limited, British American Tobacco, and Uchumi stocks.

STRATEGIC INVESTOR

The supermarket chain’s 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.

And Uchumi seems to have taken the first step by stocking up for Christmas.

Tourism, too, is likely to do well.

In spite of prolonged electioneering, tour-related businesses have still had a relatively good year, and 2018 promises to build on that momentum. Unless something significant happens that leads to travel advisories, many companies in the sector have their bookings for 2018 already in the bag.

Improved infrastructure across the country will also see growth in domestic tourism. For this reason, I will put a bet on Serena Hotels as a key stock to watch this year.

CONSTRUCTION REBOUND

Are we likely to see a construction rebound? The answer is ‘yes’, and this will not only be driven by Government projects, but also the private sector. For that, companies like Bamburi Cement and Athi River Mining are likely to do well because of the increased demand for cement. 

In an economy that will generally do well, portfolio investors are also likely to flourish.

Companies that have invested in various industries, like Centum, are likely to do better — with a caveat on their banking investments.

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

So, will insurance companies take the share of financial investments by portfolio investors wary of banks? It may be too early to tell, but they certainly didn’t seem to benefit from the capital flight from banks in 2017.

The aviation industry will continue to see recovery globally unless a major happening discourages travel. The story of Kenya Airways’ stock rebound could dominate conversations for a long time, and this year we will start seeing the fruits of the carrier’s reorganisation.

But, while the results will no doubt show marked performance improvements, it’s unlikely that it will lead to much greater appreciation of the stock than its current major jump has put it.

MEDIA

The media industry will be an interesting one to watch.

The two companies quoted in the stock exchange will be unveiling new chief executives probably in the first quarter, and I’m sure each will hit the ground running to show early results.

The liberalisation of the airwaves — which reduced the barrier to entry into television — and the onset of telecoms as content drivers will continue to drag the 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 the stocks is the direction the shilling takes against the US dollar. A rapidly depreciating shilling will invite a lot of foreign buyers as it will mean cheaper shilling-denominated stocks. The converse will also be true.

My sense, overall, is that early buyers of stocks as the year starts may have reason to celebrate around Christmas. I am sure someone will remind me this when sending me a Merry Christmas message 12 months from now.

Mr Gitahi is the Chairman, AIB Capital