Recovery of the bonds market promises good returns for stockbrokers. PHOTO | FILE
Bonds turnover on the Nairobi Securities Exchange (NSE) rose by 39 per cent to Sh263.2 billion in the first half of the year as investors shifted their attention to the fixed-income market to avoid declining returns from equities.
The NSE counts only one side of a trade when calculating the bonds turnover to reflect the actual sum changing hands, but stockbrokers earn commissions on both sells and buys of a transaction, meaning their effective turnover is Sh526.4 billion.
Returns on bonds in the secondary market are still trending above 10 per cent in contrast to the equities market where the year-to-date return on a majority of stocks is in the negative with the NSE 20 share index nearly 13 per cent down since January.
Local institutional investors have opted to put in cash into the bonds market, providing it with a liquidity boost, thus reversing the decline in activity that was recorded throughout 2015.
“Interest rates in the bond market still remain high so there’s little incentive for investors to revert to the equities market,” said Dyer & Blair head of research Linet Muriungi in a comment on the half-year performance.
The recovery of the bonds market after a lean 2015 —when turnover fell by 40 per cent —promises good returns for stockbrokers who have strong fixed-income desks, such as Faida Investment Bank (FIB) whose market share in this segment has doubled following its recruitment of two bond traders from Dyer & Blair in July last year.
FIB accounted for 16.5 per cent of total bonds turnover in the first half of the year, translating into trades worth Sh86.8 billion, which counts both buys and sells. Dyer’s market share in bonds has in turn dropped from 19.7 per cent in June last year to 1.04 per cent this year.
Sterling Capital has also joined FIB in edging out established players in the bonds space such as SBG Securities and Dyer.
Sterling more than doubled its market share in the bonds market in the six months to June to 12.8 per cent (Sh68.94 billion), from 4.9 per cent in similar period last year.
Kestrel Capital, however, retained its lead in the share of the bonds market, accounting for 28 per cent of traded turnover which translated into trades worth Sh147.5 billion.
Standard Investment Bank has also raised its market share, from 8.7 per cent in the six months to June 2015 to 13.1 per cent this year.
Stockbrokers earn a commission of 0.035 per cent for each bond transaction, whether a sell or a buy.
Not counting any discounts offered to large clients, the industry should earn Sh184.24 million in commissions from the half year turnover.
Of this, Kestrel accounts for Sh51.5 million, FIB Sh30.4 million, SIB Sh24.1 million and Sterling Sh23.6 million.
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