NSE goes live at The Stanley to spur investor interest

In a journey reminiscent of the old days, the Nairobi Stock Exchange (NSE) returned to The Stanley Hotel where it started its operations in the 50s.

Whereas in the past share trading was transacted over a cup of coffee, this time round NSE went back at a more advanced level as its trading was beamed live to the hotel’s Exchange Bar.

However, the same cannot be said of many investors who still hope their investment will scale northward.

The expected upward journey of their share investment is yet to materialise as the bearish market continues to depress prices.

The declined performance of the bourse has even defied the inflow of foreign investors with prices across the counter unable to pick up any sustainable momentum.

“The stock market is currently being driven by foreign investors who are buying relatively cheap stocks in readiness for the expected pick,” said Mr Peter Mwangi, the NSE chief executive officer.

According to an investment note by Sterling Investment Bank, foreign investors increasingly constitute the majority of trading.

“Foreign trades made up about 67 per cent of the total turnover in the market, emphasising the dominant role that foreign investors continue to play at the Kenyan bourse,” says the market research note.

However, market watchers are optimistic that the market has hit a trough and the next movement is expected to be upward.

“It can’t get any worse than it is hence we expect the prices to start edging upward albeit at a slower pace,” said Aly Khan Satchu of Rich Management an Investment Advisory Agency.

A pointer to an expected upward movement of prices is seen from the immediate price surge of BOC Kenya and Carbacid Gases which were re-listed recently.

The re-listing follows BOC’s decision to call off its intended acquisition of Carbacid.

At the time of suspension in December 2005, BOC and Carbacid shares were trading at Sh160 and 137 respectively.

On their first day of trading BOC shares traded were stable at Sh161 while Carbacid shares rose to a high of Sh290 before easing off to Sh200.

With the financial segment having been the main driver of the bourse, the streaming of stable third quarter results is likely to firm up the market.

“We expect the market to remain firm at the current levels with marginal fluctuations as most banks are likely to report modest profits in the third quarter,” says the Sterling Investment Bank note.

Price rally

The expectation of a price rally is also given credence as some of the major counters are reporting better returns in the face of the ongoing depressed economy.

Stanchart returned a 41 per cent pretax profit for the third quarter.

At the close of trading Stanchart shares gained Sh4 to close at Sh146.

Similarly, Kenya Power and Lighting reported the highest profitability growth by posting a 74 per cent pre -tax profit.

Safaricom which released their half year results recorded a 3.7 per cent growth in operating profit to Sh9.9 billion from Sh9.57 billion for a similar period last year.

This is expected to refresh the outlook of the market in the days ahead possibly putting breaks to further price decline.

The increase involvement of foreign investors however, is read with caution as the market recovery cannot entirely be dependent of them.

“Whereas it’s critical to have foreign investors, it’s important to note that they use other none fundamental factors such as prevailing political environment to make their decision”, said Justus Agoti an analyst with Sterling investment Bank.

Mr. Agoti observes that as the country move toward the 2012 election foreign investors are expected to withdraw from the market only to return after the general election.

The ease of exit by foreign investors which can lead to rapid collapse of prices can only be checked by having more local investors to maintain liquidity and stability in the market.

In addition, most of foreign investors tend to concentrate on fewer counters which have prospects of higher returns.

Market analyst indicates that some of the most preferred counters are Safaricom, Equity Bank, East African Breweries and Athi River Mining.

Other counters keenly followed by these investors include Barclays Bank, Standard Chartered Bank, Jubilee Insurance and TPS Serena.

The preference for the NSE by foreign investors is due to it being one of the four African frontier stock market with prospect for good return on investment.