NSE approaches seven-year high on Safaricom gains

Nairobi Securities Exchange (NSE) is edging towards a seven-year high largely lifted by Safaricom which on Friday set a new all-time trading peak of Sh15.50.

The market shrugged off negative effects of the capital gains tax controversy to hit a six-year eight-month high on Friday with demand aided by a highly liquid money market.

The NSE 20 share index closed at 5,465 points, the highest since June 2008, with market capitalisation standing at Sh2.45 trillion.

Market analysts say the uncertainty that has seen the market record low trading turnover this year notwithstanding, the pricing is being determined by entirely different factors, including prospects of economic growth.

ABC Capital corporate finance manager Johnson Nderi said as long as there is demand and supply of shares, low volumes should not deter a price gain.

“The prevailing monetary policy environment is a big factor in pricing. There is a lot of liquidity in the money market at the moment, and it is transiting into the apex markets such as that of equities. We have also seen the big cap counters dominate demand, with the market’s fortunes tied to the improving general economic performance,” said Mr Nderi.

Safaricom, by virtue of being the largest listed company with a valuation of Sh615 billion (25 per cent of market total), carries a large weight in the indices.

READ: Safaricom shares at all-time high as NSE soars

Other blue chips that gained last week included East Africa Breweries Ltd (EABL) which rose four per cent to Sh345, while Equity Bank gained nearly three per cent to Sh54.50.

Activity in the market continued to improve as well, with turnover rising to Sh4.2 billion from Sh4 billion week-on-week.

“The market was buoyant today (Friday) matching the activity of the past two days, with investors not reacting negatively to the news yesterday that there might be a disruption in trading,” said a dealer at an investment bank who did not wish to be named commenting on the threatened market boycott by brokers.

The outlook for the economy has been brighter this year, with a host of institutions and analysts, most notably the Treasury, expecting output to grow at a minimum six per cent compared to about 5.3 per cent in 2014.

The Treasury expects the economy to expand by 6.9 per cent thanks to momentum picking up in a range of sectors like farming, real estate and financial services.

World Bank projects six per cent growth, same as Citi and ratings firm Fitch.

Investment managers from 10 firms interviewed by Nairobi-based research and analysis firm HTM Capital said they expected the economy to benefit from one-off additions of between two and 2.5 per cent from infrastructure projects such as the standard gauge railway.

Lower fuel prices expected to result in falling general prices should boost consumption which bodes well for services and consumer goods companies.

Listed manufacturing companies are eyeing dividend from participating in the big infrastructure projects, a factor already seen as positively impacting the valuations of cement stocks.

Road, railway, energy and airport projects are seen as big potential winners in the Treasury budget policy statement for Sh1.9 trillion Budget next fiscal year.