Low share prices cause flight at NSE

• Over 15,000 local retail and institutional investors leave the bourse
• Foreigners take charge and trade among themselves sometimes
• Retail investors mostly frustrated with low prices
• The historically high prices of 2007 and 2008 yet to be hit with index mostly below 4000 points.
• Shift to real estate and fixed-income market by local institutional investors such as insurance firms and pension funds.

Thousands of local investors have exited the Nairobi bourse, leaving room for foreigners to dominate trading and increase their share of the market.

Data from the Capital Markets Authority (CMA) shows that thousands of local investors have left the equities segment of the Nairobi Securities Exchange (NSE) in a move analysts say is a reflection of their frustration with the persistence of low share prices.

Some of the investors have also moved their money to real estate, fixed-income or bond markets where returns stand higher than equities, analysts said.

A total of 15,307 investors, the majority of them retail and at least 2,000 corporate or institutional investors, left the bourse in the past two years, according to official market data. The exit saw the total number of shares held by local individual and corporate investors fall by nearly nine percentage points to 69.5 per cent of the total compared to two years ago when they controlled 78.1 per cent of the market.

This means that there were 872,441 individual Kenyan investors at the NSE by the end of June, down from 885,188 investors in June 2010, following the exit of 12,747 retail investors in just two years. Some 2,290 institutional investors also left the bourse during the period.
It is the first time that a large number of investors have left the equities market since the 2008 entry of telecoms giant Safaricom through an initial public offering (IPO) that raised the total number of CDS account holders to 965,000.

The recent exit of local retail and institutional investors has cut the number of CDS account holders to a total of 915,000 or an annual average exit rate of just over 12,000 in the last four years.

Foreign investors have over the same period raised their total holding of shares at the bourse to 31 per cent up from 22 per cent – the highest point ever in the past five years.

Stockbrokers and investors cite the big shift to real estate, the long bear run that left the share prices at four year low and disappointment with the performance of Safaricom share price as the three main drivers of the investor exits.

Safaricom debuted in the market at a price of Sh5 a share but has mostly traded at below the offer price in the past four years.

Analysts say that while small shareholders have left out of frustration, the high net-worth and institutional investors have mostly moved out as part of a deliberate plan to diversify their portfolios.

“While some have left out of frustration, others have left because they think other investment options may be more profitable,” said Job Kihumba, executive director at the Standard Investment Bank. For high net-worth and institutional investors, the fixed-income market characterised by high interest rates on Treasury bonds and bills has been a key pull factor.

Mr Kihumba said the days when retail investors jammed brokerage houses to trade in shares appears to have gone by leaving behind those with a long term view of the market.

Mr Kihumba said the exists have been mainly in the ranks of investors with up to Sh200,000 worth of shares have gone away due  disappointment.

Those holding higher amounts have only moved their investment to real estate, buying plots or building houses, he said.
“High net-worth individuals have been particularly keen on entering the robust real estate market after disappointment with low prices in the past couple of years.” 

This has left foreign investors to dominate trading at the bourse, accounting for as much as 70 per cent of the market turnover on some trading days.