A broker trades at the NSE. Total investor wealth at the bourse rose by Sh518.85 billion during the first three quarters of the year to stand at Sh1.79 trillion. FILE
What you need to know:
NSE defied political uncertainty and election shocks to outdo Treasury bills, bonds, bank savings, property market and forex trading in the first nine months of the year.
Total investor wealth at the bourse rose by Sh518.85 billion during the period to stand at Sh1.79 trillion.
That performance pushed the NSE 20-Share Index up to 4,793.20 points as at the end of September.
Share prices outperformed all other asset classes in the first nine months of the year, putting investors at the Nairobi bourse ahead their peers, the latest market data shows.
The Nairobi Securities Exchange (NSE) defied political uncertainty and election shocks to outdo Treasury bills, bonds, bank savings, property market and forex trading during the period.
Total investor wealth at the bourse – as measured by market valuation of all listed companies - rose by Sh518.85 billion during the first three quarters of the year to stand at Sh1.79 trillion.
That performance pushed the NSE 20-Share Index, which tracks changes in prices of a select group of 20 listed firms, up to 4,793.20 points as at the end of September – a 15.97 per cent increase from the year’s opening mark of 4,133.02 points.
This means that an investor who bought stocks at the Nairobi bourse in January had his portfolio increase by at least 16 per cent by the end of September.
That outcome put stock traders way ahead of the bonds market investors who have barely managed to get double-digit rate of returns.
The FTSE NSE Bond Index, which tracks the returns of government securities, closed September at 92.31 points or 0.438 points lower than January’s opening of 92.748 points.
This is the most accurate measure of returns on fixed income securities taking into account the multiple variables that go into analysing bonds such as maturity, redemption features, credit quality, interest rate, price, yield and tax status.
Earnings from Treasury bills and bank deposits dropped sharply during the year, keeping the investors down the pecking order. Last week, for instance, the Central Bank of Kenya received bids worth Sh2.07 billion for its 182-day Treasury bills and Sh1.16 billion for 364-day T-Bills at a weighted average rate of 9.6 per cent and 10.3 per cent respectively.
“Rising inflation means interest rates are likely to go up, negatively affecting yields on Treasury bonds and bills for current holders,” said Dennis Maranga, an investment analyst at Alpha Africa Asset Managers.
Bank deposits have become less attractive for investors given the current low interest rate regime that has seen lenders offer between six and seven per cent for fixed term deposits compared to 11 per cent last year.
The real estate sector has posted slower growth in the first half of the year, having taken a hit from election-related political uncertainty in the first quarter of the year.
HassConsult, a real estate manager that runs Kenya’s premier property index, reported in its half-year index that property prices rose 2.3 per cent in the second quarter of the year and by 9.9 per cent in the past 12 months, placing it way below the stock market performance.
Analysts expect the real estate sector to come under increased pressure following the enactment of a new law that introduces consumption tax on sale of commercial property such as office buildings, industrial premises, retail outlets, hotels and exhibition space.
The relative stability of the Kenya shilling has also left currency traders with minimal returns out of the thin trading margins.
The shilling opened the year at an average of Sh86.07 against the US dollar and was quoted at Sh86.64 on September 30 against the greenback.
This means currency dealers have been earning thin margins unlike in 2011 when exchange volatility got the shilling to a historic low of Sh104 to the US dollar, widening the trading margins.
The stock markets sterling performance is mainly linked to sustained foreign investor interest that has been partly supported by economic turmoil and the accompanying subdued earnings in European and American markets.
Total foreign inflows into the Kenyan stock market were $351.47 million in the nine months to October or 35 per cent higher than last year’s $260 million cumulative foreign inflows.
“The market has particularly benefited from continued interest and strong participation of foreign investors seeking better returns,” said Francis Mwangi, the head of research at Standard Investment Bank (SIB).
The list of foreign investors’ favourite stocks at the Nairobi bourse included Safaricom, Equity, KCB, EABL, BAT and Barclays, a research note by SIB shows.
The foreign investors, mostly corporate, own 42.26 per cent of all shares listed at the NSE.
Analysts said the US government’s recent decision to put on hold the planned rolling back of its expansionary monetary policy means foreign participation will remain strong in the near term.
“The US tapering-off programme has been put on hold, assuring frontier markets such as Kenya of continued inflows. We expect them to continue holding more than 40 per cent of the NSE,” said Mr Maranga.
Market data, however, shows that a number of counters at the Nairobi bourse gained by more than half in the nine months led by investment firm Centum whose share price rose by 118.6 per cent.
Other counters that returned a stellar performance in the period were Kenya Electricity Generating Company (KenGen), which rose 87.5 per cent, CfC Stanbic (72.6 per cent), Safaricom (68.3 per cent) and Athi River Mining at 62.9 per cent.
Einstein Kihanda, the chief investment officer at ICEA LION Asset Management, said both local and foreign investors have been bullish, helped by strong performance of most NSE-listed companies this year.
“Investors see great opportunities in the stock market and are looking at the companies favourably. There is also increased investor expectation despite some firms registering a drop in half-year earnings,” said Mr Kihanda.
Some analysts, however, warned that the surge in inflation, the heightened security concerns after the Westgate terrorist attack and sluggish economic growth may dampen Kenya’s investment climate moving forward.
Kenya’s economy expanded by 4.3 per cent in the second quarter of the year - slightly slower than the 4.4 per cent growth registered during the same quarter last year.
Headline overall inflation rose to 8.3 per cent in September - the highest in 15 months, driven by introduction of value added tax (VAT) on a wide range of consumer goods including food and electricity.
The NSE’s performance is a total reversal from the very low base of 2011 when stock valuations fell to the rock bottom.
Analysts expect the surge to continue in the last quarter of the year, assuring investors of better returns.
“The NSE 20-Share Index will continue on an upward trajectory till the early days of December when it may begin to dip with the holidays. Fund managers will also be auditing their portfolios thus reducing demand for stocks even more,” Mr Maranga said.
The NSE performance underlines the fact that the stock market remains the favourite place to earn handsome returns, given the low entry barrier that allows investors to buy a minimum of 100 shares to begin trading.
Mr Mwangi projects that the 20-Share Index will close the year having risen 20 per cent, which is lower than last year’s 28.95 per cent, but a solid performance given the poll shocks, security concerns and rising inflation.
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Note: The results are not exact but very close to the actual.
