NSE investors lose Sh53b in month of tense share trading

Stock market investors have lost more than Sh50 billion in share price erosion at the Nairobi Stock Exchange (NSE) in the past month defying corporate Kenya’s tidy profits and successful conclusion of the August 4 vote on the new constitution.

Total value of shares at the bourse stood at Sh1.126 trillion billion on Monday down from Sh1.179 billion on the eve of the constitution vote — reflecting a loss of Sh53 billion in a span of four weeks.

Stockbrokers attributed the ongoing loss of investor wealth to a steep decline in demand for shares driven by profit taking in the foreign investor segment of the market that bought highly undervalued shares in the first quarter of the year.

The steep decline in investor wealth measured by the total market value of all listed shares has defied analysts prediction of a price rally on successful conclusion of the August 4 vote that was expected to spur investor interest in the equities market.

The stock market’s performance was also expected to reflect the stellar half year profits that corporate Kenya has recently announced signalling better earnings at the end of the year.

“It is difficult to explain what is driving the market, but we have seen massive profit taking that has resulted in massive sale of shares on a number of counters and ultimately pulled down prices,” said George Bodo, an analysts at Genghis Capital.

In the past month, for example, only 12 of the 53 firms listed at the NSE have had their share prices increase — a departure from the price rally witnessed in the first half of the year that amounted to a rate of return of 33.6 per cent.

Safaricom, the NSE’s largest and most active counter by volumes traded, was the worst performer during the month shedding off 20.3 per cent on its share value as investors continue to weigh the possible impact of the ongoing price war in the mobile telephony market on the company’s revenues.

In the past three weeks, the operators have halved their voice call tariffs that remains the key revenue stream in the race to grow and defend their subscriber base.

On Monday, Safaricom share closed trading at Sh4.70 - below the psychological Sh5 IPO price - reflecting recent revisions of the firm’s share price outlook to Sh4.80 from Sh6.20 in July.
“The decline in equities market may be attributed to the competition in the mobile telephone industry, which led to a drop in the share prices at the Safaricom counter,” said Central Bank of Kenya in its weekly update of the economy.

The benchmark NSE-20 index which tracks the performance of blue chip firms has shed 1.5 per cent in the past one month.

The number and value of shares traded daily at the NSE also dropped over the month—hurting the earnings of stockbrokers who returned to the profit zone in June after announcing a combined loss of Sh275 million in 2009.

The number of shares traded has dropped from an average of 50 million shares before the referendum vote to an average of 15 million shares.

The daily turnover now ranges between Sh350 million and Sh200 million compared to Sh550 million and Sh750 million before the vote.

Though the market remains buoyant, brokers are fretful that the bourse would remain sluggish in coming months rekindling the two year poor show of the NSE to 2009.

The NSE returned negative returns in 2008 and 2009 because of the weak global and local economies and confidence crisis due to fraud and effects of the 2008 post-election turmoil in Kenya.

“The market is very unpredictable now, but there is a strong bias for flat market in coming weeks,” said Erick Musau, an analyst at African Alliance.

“There is no new information to trigger a rally. The market had factored in the referendum news and corporate profit in late July and early August,” added Mr Musau.

The dim outlook of the NSE has triggered a shift in fund managers’ portfolios as high net worth investors increasingly look at the bond market for returns.

This is explained by the vibrancy in the bond market whose trading stood at Sh361 billion in the eight months to August compared to Sh118 billion in the same period last year.

The debt segment is becoming important for the capital market intermediaries now that the equities market is recording sluggish trading.

“There has been increased investor appetite in the secondary bond market since its offering better yields than the equities and primary bond market,” said an investor brief from Standard Investment Bank.

This business segment is becoming important for the capital market intermediaries now that the equities market is recording sluggish trading.

Retail investors—who had began to show interest on the bourse after keeping off in 2009—have also began to shy away from the NSE as they tend to prefer a speculative market with wild price swings.