Stock market gets lift from central bank rate decision
The Nairobi Securities Exchange. The market posted a straight day of gains after the Monetary Policy Committee held the benchmark rate at 8.5 pc. FILE
What you need to know:
Turnover rose to Sh459 million from Tuesday’s Sh226 million, as the number of shares traded rose to 20 million against the previous day’s 9.7 million.
The NSE 20-Share Index closed 11.64 points higher to stand at 4,659 points.
The stock market reversed a week of consistent decline to post gains following Central Bank of Kenya (CBK’s) interest rate decision to hold the main policy lending rate at 8.5 per cent.
Turnover rose to Sh459 million from Tuesday’s Sh226 million, as the number of shares traded rose to 20 million against the previous day’s 9.7 million.
The NSE 20-Share Index closed 11.64 points higher to stand at 4,659 points.
“The market posted another straight day of gains after the Monetary Policy Committee held the benchmark rate unchanged at 8.5 per cent,” said Standard Investment Bank in its daily market report.
The shilling also remained stable on Wednesday, quoted at 87.53 to the dollar in the CBK mean indicative rates, from Tuesday’s average of 87.51, although it is expected to remain under pressure in the coming days.
“Activity at the Nairobi Securities Exchange (NSE) remains strong while foreign investor participation increased in August 2013,” said the MPC in its Tuesday announcement.
The reversal in fortunes comes after NSE has shed Sh70 billion in market capitalisation in the last three weeks amid investor uncertainty over interest rates and inflation.
Investor wealth has dropped from an all time high of 1.77 trillion on August 19 to Sh1.69 trillion as at close of trading on Wednesday, with the drop coming after financial institutions reported their half year results.
Anticipation of good results had whetted investor appetite for shares especially in the banking sector, leading to these counters driving up gains in the market.
With the excitement of the reporting season having abated, investors have now turned their eyes on the monetary policy, which will determine the direction of interest rates and ultimately the availability of funds to invest in the bourse.
According to Suntra Investments head of research Johnson Nderi, investors are wary of the double risk of a rise in inflation and a rise in interest rates as a result of the government’s need to fund the Sh1.6 trillion budget.
“The uncertainty over monetary policy as a result of the expansionist fiscal policy has affected the bourse. Interest rates are projected to rise, especially keeping an eye on the budget deficit.
The market is now watching the developments on the Eurobond, and in the mean time are looking for lower prices when buying shares because of the risk,” said Mr Nderi.
Key counters have also shed share price value in recent trading sessions, the most notable being East African Breweries Limited which has seen its share price drop from Sh338 at the beginning of August to Sh285 on Wednesday.
This has translated to a Sh20 billion drop in the company’s valuation at the NSE, although the price has stabilised in the last one week.
Safaricom, the biggest company by capitalisation and issued shares at the bourse, has also retreated from its all time high closing price of Sh8.15 recorded on August 19 to stand at Sh7.80 on Wednesday, in the process representing a Sh14 billion loss in value over two weeks.
Market capitalisation at the NSE has been fluctuating by significant margins in the first half of the year, as the bull runs in the bourse are followed by minor corrections and profit taking by investors.
The KCB stock, which hit its highest average price ever of Sh45 in August ahead of its half year result announcement, has also retreated back to Sh43 per share, representing a Sh6 billion downturn in market capitalisation.
