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GENGHIS CAPITAL PLAYBOOK 2021: Navigating the Now Normal

Dear Investors,

No, that’s not a typo.  The theme is just what it is, ‘Navigating the Now Normal’. The COVID-19 shock upended the world last year with far-reaching consequences; an earthquake of a magnitude 9 comes closer. While the rollout of the vaccines this year are meant to be a shot in the arm (no pun intended) to global economies, we are alive to the fact that the pandemic’s scars will still linger longer. Not only has COVID-19 exposed the domestic economy’s soft spots, but the spillover effect has weighed heavily on investment opportunities. This year’s Playbook navigates this ‘now normal’ investment landscape.

Amidst uncertainties, heightening fiscal and political risks and a temporary blip in corporate performance, lies opportunities in an undervalued market in 2021. The challenges of 2020 dragged the market 14.4% ( in USD)  lower, with the NSE-20 index at a decade low and foreign investors exiting to the tune of USD  28.8Bn . With the market having priced in the pandemic’s risks and steadying at current levels, the room for long-term upside on undervalued fundamentally sound counters looks quite promising given their growth prospects and investment in innovations around product lines. Uncertainty on economic and business recovery may limit near-term significant upside on stocks. Additionally, we expect cautious foreign investor flows attracted by the discounted market and Kenya’s additional 3.2% weighting (Kuwait upgraded to MSCI Emerging Markets Index) in the recently reviewed MSCI Frontier Markets Index and subsequent upgrade of KCB Group to the Frontier Index. However, we see foreign investors concerned by prospects of business recovery, sovereign debt levels and likelihood of heightened political activities with a referendum in 2020 and general election in 2021. Foreign flows are likely to be heavily skewed towards technology stocks and other stocks with a clearer post-pandemic recovery backed by their current discounted valuations.

By incorporating the key macro and corporate factors, the Genghis Capital Playbook 2021 seeks to bridge the gap between our clients and our research material. We move away from the traditional valuation reports and run our own Kenyan notional Equities and Fixed Income portfolios. These are constructed along similar mandates to those faced by our clients and the performance is tracked and our commentary along with our results published via our Genghis Weekly Report and Bloomberg terminal.