Improved earnings of listed companies and expectations of low interest rates have put the Nairobi Securities Exchange (NSE) on a bullish run with the main market index extending a 16-month high on Tuesday.
The NSE 20-share index reached 4,032.41 points, adding 2.92 points to the close on Monday when it crossed the 4,000 points mark for the first time since June 14 last year.
Total investor wealth — as measured by market capitalisation — rose by Sh296.23 billion at yesterday’s closing level of Sh1.16 trillion, a leap of 34.12 per cent from Sh868.24 billion as at the beginning of the year.
Additional wealth created through the bourse stood at Sh290 billion on October 5, meaning that more than Sh6 billion has been added in the last seven trading days alone.
“Earnings have been fairly good and this presents an opportunity for investors,” said Eric Musau, a research analyst with Standard Investment Bank. “It is a combination of foreign and local and investors thinking that long term interest rates may be trending downwards.”
He said local and foreign investors were rushing to pick good valuations on blue chips, especially with expectation that interest rates which reached 18 per cent last year would tend downwards.
Stanbic Investments E.A., a fund manager, has attributed the stellar performance to monetary policy easing and declining yields on debt instruments which have spurred investors to shift capital into equities and undervalued shares.
“Equity market valuations are still reasonable compared with previous market peaks and recoveries. In the short term, investors may have to contend with increased share price volatility as a result of profit taking and new entrants into the market,” Stanbic Investments said in their latest economic update released a week ago.
On Monday the NSE 20 Share Index — which tracks the prices of 20 select stocks at the Nairobi bourse — crossed the psychological mark buoyed by a sustained increase in share prices since the beginning of this year.
Yesterday’s close means that the benchmark index has gone up by 25.82 per cent from 3,205.02 points at the end of last year. Other NSE indices show stronger rallies.
The NSE All Share Index, which closed at 88.02 points, is now up 29.38 per cent from its closing point last year, the FTSE NSE 15 Kenya Index which closed at 116.92 points is now up 29.47 per cent and the FTSE NSE 25 Kenya Index which closed at 119.63 points is now up 29.13 per cent.
On Tuesday, Uchumi Supermarkets touched a new 52-week high on investor expectation of good results for the year to June 30.
The counter, which resumed trading again at the NSE at the end of May last year after five-year suspension, closed at an average of Sh19.90.
The supermarkets chain shares and closed at Sh7.70 at the close of trading last year meaning that the counter has appreciated by more than one and a half times since the beginning of this year; making it the best performer in terms of capital gains.
BAT, Crown Paints, Pan African Insurance and KCB Group have registered capital gains of 82.93 per cent, 73.17 per cent, 68.67 per cent and 67.66 per cent, respectively, since the beginning of the year.
“The index is quite selective. Investors are saying that they want to be in large companies and not in the smaller companies,” said Apollo Asset Management Company CEO Fred Mburu.
He said the current valuations were good for investors looking at the long haul, adding that it was a bit late to take positions based on sentiment around next year’s election.
“If you are looking at the long term beyond next year then there is still a case for equities,” he said.
The NSE said in a statement on Monday that the appreciation in share prices was characteristic of end-year sentiment. “We anticipate that the index will hold steady as a result of the affirmative market performance,” said NSE chief executive Peter Mwangi.
Over the first nine months of this year, the NSE has emerged as one of the best performers globally in terms of returns.
Many listed firms have posted better than expected results despite high financing costs and a volatile shilling prompting profit warnings from nine counters.
Foreign investors have been bidding mainly for select blue chip stocks that are included in indices tracked by international financial services firms and data providers such as MSCI and London Stock Exchange-owned FTSE Group.
The MSCI Kenya Index, for instance, which is one of 12 frontier market indices provided by MSCI, reported a cumulative return of 39.91 per cent between the beginning of January and the end of September.
This return was the highest among frontier markets that the index provider tracks and the second best globally after the MSCI Egypt Index, which had a cumulative 61.95 per cent return in the first three quarters of this year.
The FTSE NSE Kenya 15 and FTSE NSE Kenya 25 Indices which were launched in November last year had returns of 28.4 per cent and 27.8 per cent respectively over the same period.
This saw the Kenya indices outperform the FTSE Frontier index, FTSE All-World Index, FTSE Emerging Index and FTSE Middle East and Africa Index.