End of summer break to boost stock market activity

The end of the summer season in Europe next month is expected to raise foreign investor interest in the Nairobi Stock Exchange and other global markets as the Euro zone begins recovery.

The return of the investors will be music to the ears of market intermediaries at the bourse, who rely on commissions for upkeep, and investors, whose prospects for capital gains will increase with a rise in demand for equities.

Foreign investment at the bourse had fallen from 72 per cent of market turnover in January to 45.50 per cent in June when deal makers in Europe slow down to take annual holidays.

Since then trade at the NSE and other global markets has been subdued.

“Hedge fund managers drive a lot in this market and we should see them coming towards the end of the week,” George Bodo, a research and investment analyst at Genghis Capital, says.

Highest prices

Analysts say that the NSE will pick up as managers and traders return from summer vacations.

In their absence the market was driven by firms reporting double digit growth in earnings, signalling that an economy on the upswing and ushering in a round of share price appreciation, add Mr Bodo.

For instance the share prices for firms such as the Co-operative Bank, CFC Stanbic, Diamond Trust Bank have hit their highest prices over the last month which is in tandem with their increase in half year profitability of between 46 per cent and 98 per cent.

Research analysts from Kestrel Capital say that foreign participation is “likely” to increase buoyed by the economic recovery in the zone but key for foreigners is the availability of blocks at their target price.

“As long as there is availability for target counters and target prices they’ll continue to buy,” say the Kestrel Capital researchers.Firms that have been eyed by foreigners include Equity Bank, Safaricom and the Co-operative bank.

Dealers say that this explains why the stocks are among the most heavily traded.

Europe is also recovering above expectations, beating investor forecasts 0.7 per cent in second quarter GDP to register a 1 per cent growth.

Greece crisis

But the Greece crisis is still affecting economies and should the country default in its debt payments which is highly likely, the domino effect would possibly cause a retreat and with it slow the share price drive for some selected stocks.

Greece is the only economy in the Euro zone whose economy contracted in the second quarter of 2010.