NSE first half equity trade dip hits brokers’ earnings

Equity trades and turnover on the Nairobi Securities Exchange (NSE) fell by a third in the first half of the year compared to a similar period in 2015, leaving stockbrokers looking at reduced earnings over the period.

A fall in the number of trades and turnover translates to lower commission takings for stockbrokers, who derive the bulk of their earnings from the commission of between 1.5 and 2.1 per cent they levy on the value of an equity trade.

NSE data shows that the number of trades fell by 31 per cent to 158,790 in the six months to June 2016, from 232,212 by June last year. At the same time, equity turnover declined by 29.5 per cent to Sh75.08 billion, from Sh106.56 billion recorded in the first half of last year.

Bonds turnover over the period, however, rose by 39 per cent to Sh263.2 billion, indicating that investors were turning towards fixed-income investments which have offered higher returns than equities this year.

Investors have also seen their returns fall this year, with the NSE 20 share index ending June at 10 per cent down for the half-year period.

“The first quarter of 2016 was rocked with global financial market shocks that had a ripple effect on trading activities in Kenya. Interest rates in the bond market still remain high so there’s little incentive for investors to revert to the equities market and there was a record number of profit warnings regarding 2015 financial results that adversely affected investor appetite,” said Dyer & Blair head of research Linet Murungi.

READ: NSE bear run erodes value of agriculture, loss-making firms

The market has been in the grip of a bearish run since March last year, which saw the end of a profitable three-year bull run for investors that was fuelled largely by strong inflows from foreign investors.

External factors also contributed to the bearish run, which has also been felt in other bourses in Africa.

“The bear market has also been unrelenting for the first half of 2016 due to the effects felt across advanced, emerging and developing economies out of the slowdown in China’s GDP, the dip in global commodity prices and tightening of US monetary policy that lead to a drastic fall in liquidity and strengthening of the dollar,” said Genghis Capital analyst Elizabeth Ndung’u.

Stockbrokers saw their earnings fall last year as market metrics fell, and the continuation of the same this year will make for worrying reading.

In the first half of last year, the intermediaries were able to weather the onset of the bear run to grow their income by 15 per cent — or Sh338 million — to Sh2.58 billion, helping increase their net profits by 22 per cent to Sh563 million for the period.