NSE’s January turnover slumps to two-year low

Trading volumes at the stock market slumped to a two-year low in the first four weeks of the year as investors shifted their money from shares to the higher earning treasury securities.

Monthly data released by the Nairobi Securities Exchange indicates that equity turnover — which is calculated as the number of shares traded multiplied by their average price — dropped to Sh3.54 billion in January.

This was the lowest monthly turnover registered at the bourse since December 2009, when the figure dropped to Sh2.59 billion at a time the market was starting to recover from the effects of the 2008 post-election violence, a biting drought and the global financial crisis that almost ground the economy to a halt.

“It was one of the lowest months I have ever seen, there was low participation across the board from all investors,” said Vimal Parmal, head of research at Kestrel Capital.

High interest rates on treasury bills and bonds is seen as the biggest factor pulling money away from the equity market, while internationally the Euro debt crisis was still affecting foreign investors whose participation dropped to 43 per cent from 56.42 per cent in December.

Outflows by foreign investors also exceeded inflows by Sh812 million for the first time over the six month period between July and December last year.

“Local institutional investors have taken a wait-and-see attitude mainly because they have the alternative of high-yield fixed income securities, but we will start to see this changing going forward,” said Fred Mburu, the chief executive officer of Apollo Asset Management Company.

Mr Mburu said he expected volumes to start picking up as interest rates come down and investors start re-assessing their options, particularly in the second quarter.

Turnover at the bourse started declining steadily from a peak of Sh9.46 billion in January last year, accelerating from July when the bourse recorded a turnover of Sh7.13 billion through December when it had dropped by more than half to Sh3.97 billion.

In March last year, the Central Bank of Kenya started mopping up excess money in the economy and increased the Central Bank Rate from 5.75 per cent raising it four consecutive times in the last quarter of 2011 to 18 per cent.

It also pegged all open market operations on the reference rate and as a result, yields on 91-day, 182-day and 364-day Treasury bills, which are considered risk-free, had jumped from below three per cent in the first quarter of last year to peak at 20.799, 20.914 and 21.961 per cent respectively in January this year.

The banking regulator, which has also issued three short-term bonds that were paying interest in excess of 21 per cent over the past three months, however, started easing the high yields last month.

Eric Musau, a research analyst at Standard Investment Bank, said local institutional investors, who drive a significant portion of the equity market’s activity, had been “very quiet” last month and were “probably trying to lock in the high interest rates” before resuming participation.

“As interest rates come down we may start seeing volumes improve. Over the next one month we may start seeing position-taking ahead of full-year results and through the next three or four months we may start seeing significant declines in interest rates,” he said.

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