NSE rides to 4-year high on the back of investor confidence
The Trading Floor at the Nairobi Securities Exchange. Photo/File
What you need to know:
The NSE 20 share index rose 170.08 points during Tuesday’s trading, crossing the psychological 5,000 point mark to finish at 5030.91 points.
Investor enthusiasm during Tuesday’s trading also increased the market’s total value by Sh50 billion to Sh1.65 trillion.
Tuesday’s 3.5 per cent rise in the index was also the biggest one-day increase in four years.
The Nairobi Securities Exchange (NSE) touched a four-year high on renewed investor confidence after the Supreme Court’s Saturday judgment that settled the March 4 General Election.
The NSE 20 share index, a key measure of activity in the stock market, rose 170.08 points during Tuesday’s trading, crossing the psychological 5,000 point mark to finish at 5030.91 points.
The market entered the Easter weekend at 4860.83 points as trading closed last Thursday, two days before the Supreme Court delivered its judgment on a petition filed by presidential poll loser Raila Odinga.
Investor enthusiasm during Tuesday’s trading also increased the market’s total value by Sh50 billion to Sh1.65 trillion, suggesting the return of those who had stayed away pending the conclusion of the election.
The Kenyan shilling also rose against the US dollar to close at a six-month high, pointing to a general rise in confidence in other sectors of the economy.
“The markets are reacting to the peaceful conclusion of the electoral contest arising from the Supreme Court’s judgment. Only one stock lost value today (Tuesday). The rest were unchanged or up,” said Anthony Kimani, a research analyst at Genghis Capital.
East Africa Breweries Limited was the only stock that lost value, falling marginally to close at Sh310 during Tuesday’s trading from Sh311 last Thursday.
Unga, KenGen and Car & General hit the 10 per cent share price rise cap. Trading rules limit any share price gains to not more than 10 per cent in any single trading session where there is no material announcement.
The prices catapulted the NSE 20 Share Index to a level last seen in July 28, 2008 when the index stood at 5046.936 points. The index rose to a peak of 6071 points in January 2007.
Tuesday’s 3.5 per cent rise in the index was also the biggest one-day increase in four years. Market watchers said the peaceful outcome of the election had encouraged local investor participation in the market that has since January been dominated by foreign traders.
“The Supreme Court upheld the election of Uhuru Kenyatta as the President, eliminating uncertainty that would have been triggered by a presidential run-off. Locals are now more active in the market accounting for 73 per cent of the day’s trades,” said a mid-morning market report by NIC Capital. Data from the NSE indicates during the last quarter of 2012 foreign corporations and individuals with a stake in the market increased their holdings while local corporations and individuals reduced theirs compared to a similar quarter in 2011.
Foreign corporations held 40 per cent of the market at the close of the fourth quarter of 2012 up from 26.9 per cent in the fourth quarter of 2011.
Local corporations and individuals reduced their holdings to 34.1 per cent and 23.1 per cent from 41.2per cent and 28.2 per cent respectively during the same period.
The Supreme Court upheld the Independent Electoral and Boundaries Commission’s (IEBC) decision to declare Uhuru Kenyatta as the winner of the presidential election on March 9, dismissing Mr Odinga and a non-governmental organisation – Africog’s petitions.
Analysts said that Prime Minister Odinga’s acceptance of the decision reinforced market confidence in Kenya as country with credible institutions capable of resolving difficult political issues with finality.
“Casting doubt on the judgment of the court would have led to higher political and economic uncertainty, and make it more difficult for our country to move forward,” Mr Odinga said in his acceptance speech.
Some analysts, however, warned that the bullishness may be short-lived as the excitement on a peaceful outcome begins to wane and investors cash out on gains so far made.
Eric Musau, a researcher at Standard Investment bank, said the gains may be temporary because they are borne out of the feel good factor arising from peaceful conclusion of the General Election.
“Overall the market outlook is good, but going forward we don’t expect it to gain much further than what we saw today,” said Mr Musau even as he ruled out a massive correction arguing that firms with large market capitalizations tend to attract long-term investors.
Mr Musau said key drivers of stock market performance lie in how the companies perform in 2013. Major businesses and banks had forecast that peaceful elections would strengthen market fundamentals and drive stock valuation in the medium term.
A survey by the Central Bank of Kenya that took views from all commercial banks and major businesses found that the majority believed a peaceful poll would strengthen the shilling and help reduce interest rates by reducing the country’s risk profile.
Speculation cannot be ruled out as some firms are yet to release their end of year results. Safaricom is expected to release its results next month. East Africa’s most heavily traded company’s financial year ends on March 31.
