Nairobi bourse sheds 3pc value in a fortnight

The stock market has shed three per cent in value so far this month to slip below the 4,700 point level for the first time in 22 months.

The Nairobi Securities Exchange (NSE) has been weighed down by continued foreign investor exits and cautious trading by locals.

The benchmark NSE 20 share index stood at 4,690 points on Wednesday, 149 points below the 4,839 points level at which it opened this month.
The NSE All Share Index (NASI) has also fallen nearly four points to 158.45.

Market capitalisation has fallen by Sh68 billion since the beginning of the month to Sh2.2 trillion.

Analysts say that the market is likely looking at a bear run, which could however open up an opportunity for some investors previously shut out by high stock valuations.

“All indicators from our valuations show that some stock prices have sunk further below their fair values,” said Genghis Capital analysts in a market report.

“This could be attributed to the prevailing weak fundamentals in our economy, which have contributed immensely to the heightened exits from our markets by foreign investors as well as increased sell-offs from local investors as they curb any further detrimental losses on their portfolios.”

The market slump has been seen across all classes of counters as at Tuesday this week.

Crown Paints was the biggest decliner over the past fortnight having shed 25.8 per cent in price to Sh57.50, while insurance counters Britam and Pan Africa follow with 13.2 per cent and 10.6 per cent declines to Sh17.80 and Sh67.50 respectively.

Among the blue chip counters, Safaricom, Equity and EABL have seen declines of 4.5 per cent, 2.2 per cent and 4.4 per cent respectively, on foreign investor selling.

In the first two weeks of the month foreign investors have pulled out a net of Sh1.2 billion from the market, data from Standard Investment Bank shows.

READ: Foreigners pull out cash from NSE for second time

The Genghis analysts say that this downward trend may persist in the near term with increased speculation on further weakening on the shilling.

As the shilling weakens, foreign investors are likely to keep exiting their portfolios as they look to protect the value of their investments in terms of dollar returns.

At the same time the investor outflow contributes to the negative impact on the local currency as it creates higher demand for the dollar.

Spillover effect

There are fears also that the policy actions in the economy meant to address the weaker currency and rising inflation could have a spillover effect on the stock market, especially on banking sector stocks which have been driving the market upwards over the past two years.

The banking sector has seen only three out of 11 counters register gains this month. The central bank’s Monetary Policy Committee (MPC) has between May and July increased the benchmark interest rate to 11.5 per cent from 8.5 per and the Kenya Banks Reference Rate from 8.54 per cent to 9.87 per cent.

“We expect to see a change in the equities market, especially the banking sector. We expect a decline in the loan books as credit uptake falls and an increase in non-performing loans as increased rates are passed on to the borrowers,” said financial advisors Cytonn Investments in a note to clients.

Analysts are however hopeful that the recent scrapping of the capital gains tax (CGT) on equities will eventually help stem the outflows.