Investors at the Nairobi bourse have emerged among the biggest gainers globally as the stock market out-performed other asset classes in 2012, driven mostly by blue chip companies and foreign capital inflows.
The Nairobi Securities Exchange (NSE) 20-Share Index – the benchmark that tracks changes in prices of a select group of 20 listed firms – closed the year at 4,133.02 points, a 28.95 per cent increase from its opening level of 3,205.02 points.
Total investors’ wealth at the stock market, which is measured by market valuation of all the companies listed at the NSE, increased by Sh403.76 billion during the year closing at Sh1.272 trillion, a capitalisation level last attained with the 2008 listing of Safaricom.
The performance of the NSE has been so strong that it outperformed other markets tracked by global index providers and data vendors such as MSCI and FTSE Group, both based in London.
MSCI ranked the Nairobi bourse as the best performing in its Frontier Markets Africa Index, while its Kenya index was the second best performing globally after the MSCI Turkey Index.
“The top three single country Frontier Markets index performers for 2012 year-to-date included the MSCI Kenya, Nigeria and Estonia Indices which posted returns of 54.16 per cent, 52.82 per cent, and 44.98 per cent, respectively,” said MSCI in a statement capturing the 2012 performance.
This means that if an investor had bought the stocks that are tracked by the MSCI Kenya Index in their exact weights, the value of their portfolio would have increased by more than half as at December 28.
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Paul Wachira, the chief executive of AIB Capital, estimated that a good portfolio of stocks in 2012 returned earnings of between 30 and 40 per cent compared to Treasury bills and bank deposits which would have earned investors between 14 and 15 per cent after interest rates dropped sharply during the year.
Amos Kosgey, a portfolio manager at Apollo Asset Managers, said the stock market out-performed even the real estate sector, which was slowed down by high borrowing costs at the beginning of the year and jitters about the upcoming General Election in March.
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Rising prices of building materials also affected real estate investment projects. According to real estate consulting firm Hass Consult, developers shelved building projects in the first half of the year as demand for new units dropped sharply following a steep increase in lending rates to over 25 per cent.
The slow down in construction is reflected in the Kenya National Bureau of Statistics data which shows the sector grew by 0.6 per cent in the third quarter of 2012 down from 1.4 per cent and 3.2 per cent in the second and first quarters respectively.
The growth in production and consumption of cement also slowed down by 0.6 per cent and 1.5 per cent during the third quarter compared to expansions of 8.9 and 7.7 per cent, respectively, over a similar period in 2011.
In its third-quarter market report, Hass Consult estimated that returns for house developers stood at 13.81 per cent “across both rental yields and house price appreciation.”
“Equities performed the best because we were coming from a very low base and anybody who invested in January would have made very good gains,” said Mr Kosgey.
NSE chief executive officer Peter Mwangi said strong profit growth of most blue-chip companies and overall economic recovery after the turbulence in the last quarter of 2011 had attracted investors back to the stock market.
“There was continued interest and strong participation by foreign investors seeking to take advantage of the relatively low valuations and a switch back to equities by local investors as money market yields reduced with the decline in short-term interest rates,” said Mr Mwangi.
While many of NSE’s 60 listed firms have been posting better than expected earnings, at least ten have issued profit warnings, causing erosion of their share prices. However, new listings such as Longhorn Publishers, CIC Insurance and Umeme and five rights issues have also helped to increase the total market valuation.
The rise in the prices of basic goods and services declined to 3.2 per cent last month, the slowest pace since October 2010 when the inflation rate stood at 3.18 per cent before it began rising to peak at 19.72 per cent in November, 2011.
Interest rates have also been coming down leading to a decline in returns offered by Treasury bills and short-term bonds, making a select group of blue chip stocks more attractive than government securities.
“Our outlook for next year is bullish. Other factors supporting the positive outlook include resolution of the Al Shabaab menace, favourable weather patterns and stronger growth prospects for the regional economies,” said Mr Mwangi.
The FTSE 15 Index, FTSE 25 Index and NSE All Share Index in 2012 rose by 39.24, 38.67 and 39.42 per cent up to close at 125.75, 128.46 and 94.86 points respectively indicating that investors who would have been tracking the stocks in these indices would have seen their portfolio increase in value by at least these margins.
Mr Wachira estimated that a good portfolio of bonds would have returned about 20 per cent, as most of the fixed income securities increased in value due to declining interest rates.
British American Asset Managers managing director Edwin Dande said a well diversified portfolio would have been the best investment strategy in 2012 as it would have incorporated the stock market gains and the high Treasury bill and deposit market returns at the start of last year.
“The sweet spot was a diversified portfolio investor who enjoyed rising equity returns through the year, but also enjoyed the high rates of return in the money markets for the first half of the year,” said Mr Dande.
He however pointed out that real estate is a long-term investment whose performance cannot justifiably be evaluated over a year, but that it is still an important component of an investor’s portfolio.
Anthony Mwithiga, the chief investment officer at Stanlib said foreign investors’ participation also lifted the NSE.
Latest data on international investors from the Nairobi bourse shows that they bought shares worth Sh48.75 billion between January and November 2012 and made sales worth Sh29.14 billion, making them net investors of Sh19.605 billion.
Over the corresponding period of time in 2011, they had made purchases worth Sh36.783 billion and sales worth Sh37.498 meaning that they were net sellers by Sh715 million.
Safaricom, East African Breweries, KCB, Equity Bank, Kenya Power,KenolKobil, Uchumi, Cooperative Bank, British American Tobacco and Barclays Bank were the ten most popular counters for institutional foreign investors in the month of November.
“It has been better than expected. The sovereign risk that is associated with an election year was downplayed by foreign investors and we are seeing more confidence from business leaders,” said Mr Mwithiga.
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NSE closing data for the year shows that the best performing counter in terms of capital gains was Uchumi Supermarkets, which closed at an average price of Sh19.10 having opened the year at Sh7.70, a 148.05 per cent increase.
Crown Paints came in second closing at an average price of Sh42.50 having opened the year at Sh20.50, an increase of 107.32 per cent, followed by British American Tobacco which rose 100.41 per cent to close at Sh493 having opened the year at Sh246.
Pan African Insurance, KCB Group, Safaricom, Scangroup and Nation Media Group closed the year at Sh40.25, Sh29.75, Sh5.05, Sh68.50 and Sh222 respectively. These five stocks had appreciated by 93.98 per cent, 76.56 per cent, 71.19 per cent, 65.06 per cent and 58.57 per cent respectively since the beginning of 2012.