Bourse loses its shine among African peers

With only three months to end of the year, the stock market is stuck in negative territory, with high inflation, a weakening shilling and economic growth uncertainties clouding its shine as an investment option.

Share prices at the Nairobi Securities Exchange (NSE) have dropped by almost 26 per cent during the first nine months of the year, making the Nairobi bourse one of the worst performers in Africa.

As at the end of September, the NSE 20 Share Index —which tracks the movement of share prices and which consists of a basket of stocks representative of the entire market —had dropped to 3,284 points from 4,432 points at the close of trading in December 2010.

The Kenyan stock market ranks second to Egypt among African bourse’s worst performers in the first three quarters of the year.

Egypt’s index—the EGX 30 — stood at 4,137 points as at the end of September, a 42 per cent drop from 7,142 points at the close of trading last year.

The NSE’s drop ties with Uganda’s Securities Exchange whose index also fell to 884 from 1,188 points over the same period.
Investors at the East Africa’s largest economy’s bourse saw the value of the all listed companies drop by Sh282.7 billion ($5.7 billion) over the first nine months of this year.

The largest qaurterly losses amounting to Sh226.56 billion ($3.43 billion) or 80 per cent were recorded in the third quarter. On the last day of trading in December last year, market capitalisation stood at Sh1.17 trillion ($14.5 billion), almost double the Sh885 billion ($8.86 billion) at the end of September.

“This has generally been a challenging year for the equity markets world over,” said Moses Lopokoiyit, the acting general manager at Genghis Capital.

“Most African indices have lost on a year-to-date basis with only eight African indices in the positive as at October 7 in local currency terms. If you were look at their performance in dollar terms, the picture is much worse with only four indices in the positive.”

The MSCI Emerging Markets Index is down 19.82 on a year-to-date basis, US markets have declined 4.01 per cent, Japan has lost 13.74 per cent and China is down 13.15 per cent.

According to Mr Lopokoiyit, countries that are resource rich are the only ones that have managed to hold value of their currencies, and this has shielded their stock markets from deep erosion.

Last year the Kenyan market was one of the most robust in the continent giving investors high returns on the back of low inflation and interest rates and strong economic growth that hit 5.6 per cent, lifting the earnings of majority of the stocks at the bourse.

The first three quarters of 2010 saw the NSE 20 Share Index —which was the NSE second best performing in Africa, after Uganda — gain by almost 43 per cent compared Uganda’s which had risen by almost 53 per cent.

Data from African Alliance Investment Bank indicates that in dollar terms the Egyptian, Ugandan, Kenyan, Nigerian and South African stock markets have been the top five worst performing having returned -46.13, -41.94, -41.55, -23.34 and -23.15 per cent respectively between the start of the year and the end of last week.

“The fact that turnover has come down indicates that investors have moved elsewhere either to bond markets or to where there is safety,” said Paul Sigsworth managing director ICEA Asset Management who added that the market was becoming attractive to investors due to its low valuation.