Stock market adds Sh186bn to investors wealth in 6 months
Traders on the floor of the Nairobi Securities Exchange. Small and medium-sized counters recorded higher growth than the large ones during the first half of the year. FILE
What you need to know:
Market capitalisation, the value of all listed stocks, rose 10 per cent to Sh2.01 trillion helped by share price appreciation in key insurance, banking, and telecommunications sectors.
Small and medium-sized counters, however, recorded higher growth than the large ones as reflected in the contrasting trajectories of the two main indices used to measure performance at the Nairobi bourse.
The market’s performance was particularly stellar when compared with the returns that investors who put their money in other investment platforms such as Treasury Bills.
Investor wealth at the Nairobi Securities Exchange (NSE) grew by Sh186 billion in the first half of the year, affirming the bourse’s position as one of Kenya’s most dependable investment options.
Market capitalisation, the value of all listed stocks, rose 10 per cent to Sh2.01 trillion helped by share price appreciation in key insurance, banking, and telecommunications sectors.
Small and medium-sized counters, however, recorded higher growth than the large ones as reflected in the contrasting trajectories of the two main indices used to measure performance at the Nairobi bourse.
The NSE 20 Share Index — listing of top players in each segment of the market — dropped 0.9 per cent to stand at 4885 points even as the NSE. All Share Index rose 10 per cent to 150 points from 136 points in January.
This effectively means that an investor whose portfolio comprised exclusively of stocks that constitute the NSE 20 Share Index got less returns than one who put his money in non-index stocks.
The market’s performance was particularly stellar when compared with the returns that investors who put their money in other investment platforms such as Treasury Bills.
Returns on investments in fixed income securities such as Treasury Bills trailed equities in the past six months while those who invested in the money markets were hit even harder as the shilling came under pressure with the decline in dollar inflows from the tourism and horticultural export sectors.
Yields on the 91-day T-Bill rate stood in the range of between 8.75 per cent and 11.5 per cent in the first six months of the year while the 182-day T-Bill traded at between 9.8 and 11.6 per cent.
In the money markets, the shilling weakened against major world currencies — exchanging 1.4 per cent weaker to the dollar in June compared to January.
Real estate, the sector that has delivered the most returns to investors in the past eight years, slowed down in the first six months of the year as economic hardships dampened activity in the sector.
“Growth was in the range of three to five per cent in the first quarter of 2014 depending on which subsector one looked at. We, however, do not expect this to persist in the long term,” said Knight Frank managing director Ben Woodhams.
With inflation averaging 6.9 per cent so far, investors are expecting less returns in real terms compared to 2013 when inflation averaged 5.7 per cent.
Return on investment in equities at the Nairobi bourse during the first six months of the year were, however, less robust than what the market delivered to investors in 2013 when the NSE 20 Share Index rose 19 per cent while the All Share Index gained 44 per cent.
Market analysts say equities have so far performed better than their expectations at the beginning of the year.
“These returns, though not comparable with what we saw in 2012 and 2013, are more than satisfactory especially when placed against the backdrop of deterioration in security situation during the period,” said Aly-Khan Satchu, an independent analyst.
Investors in Unga Group saw their wealth appreciate by 80 per cent in the six months to stand at Sh32.50 while CIC Insurance share price rose 68 per cent to stand at Sh9.95 on Monday.
Equity Bank was up 50 per cent to Sh47 during the same period while CfC Stanbic gained 48 per cent to close the half year at Sh129 a share.
The Alternative Investments Market Segment (AIMS), which comprises low capitalisation stocks, also recorded significant gains led by Kenya Orchards, which rose 215 per cent to Sh9.45, and Express Kenya, which gained 78 per cent to stand at Sh6.95 a share in the first six months of the year.
The insurance segment collectively grew 38 per cent, adding Sh32 billion to the sector’s capitalisation for a total of Sh118 billion.
The banking sector also posted a 15 per cent rise in capitalisation or Sh107.6 billion to stand at Sh813 billion in the six months, stretching a steady growth that has persisted since 2012.
Analysts said this level of returns was unexpected especially because most stocks were grossly over-valued at the close of last year.
“The market looked expensive coming out of last year. We have therefore seen company earnings and corporate actions strongly determining the share price performance especially in banking and insurance where earnings were favourable,” said Kestrel Capital analyst Kuria Kamau.
Similar trends were registered in agriculture stocks, which rose 16 per cent, the investment segment (14 per cent) and the telecommunications segment where Safaricom’s valuation grew to Sh498.8 billion.
Manufacturing, commercial and services, construction and energy sectors returned negative growth in the first six months of the year with constituent stocks leading the decliners list in the period.
The biggest decliner in the six months was Carbacid which lost 46 per cent of its value to stand at Sh27.75. Uchumi closed the half year 36 per cent lower at Sh12.10 while Marshalls and Home Afrika dipped 25 per cent at Sh9 and Sh4.40 respectively.
Carbacid responded to the poor performance with a 33 per cent cut on interim dividend to Sh0.40 per share and said the decision was informed by lower demand from its Southern Africa market that caused a 10 per cent drop in net earnings to Sh235 million for the half year ending December 2013.
The first half of the year has seen the return of retail investors to the buyers-market, helping the market absorb the modest foreign investor flight in the first quarter of the year.
Standard Investment Bank said in a June report that the net outflow from foreign investors stood at Sh3 billion in the first quarter of 2014 but that quickly reversed in the second quarter when the foreigners pumped Sh6.2 billion into the market.
Analysts, however, remain cautiously optimistic about the second half of the year, saying it all depends on whether interest rates will fall in line with the government’s promise that it plans to reduce its activity in the domestic borrowing market.
A fall in yields on government securities would direct more inflows into the bourse, especially from institutional investors, helping drive share price gains.
“The investment climate could experience a cold spell in the short to medium terms as international investors take stock of the effects of security risk on investment,” said risk and research firm Stratlink Africa in its Kenya markets update for June.
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