Subdued trading at NSE after the vote

Trading at the Nairobi Stock Exchange on Monday dropped to record levels as investors continued to shy away from the market following the referendum.

The benchmark NSE-20 share index—which tracks the performance of blue chip firms—closed trading 7.95 points down to 4,666 points on reduced demand, notably from foreign investors.

The thin trading signals that investors are still uncertain of the direction of the bourse after the vote even as stockbrokers termed the lull “ temporary.”

The number of shares traded dropped to 15 million from 25 million on Friday and 51 million on Tuesday ahead of the Wednesday vote.

The daily turnover stood at Sh252 million compared to Sh499 million on Thursday and Sh765.8 million on Tuesday—leaving stockbrokers with reduced commissions as investors stayed away.

“What we are seeing is short term volatility,” said Victor Odendo, an analyst at Apex Africa Investment Bank.

“In the long term, there is optimism that the market will pick up gradually on the back of increased investor confidence as the country reaps from a low political risk profile,” he added.

The bourse was witnessing reduced activities from foreign investors, a trend that started in May on uncertainty over the outcome of the referendum, he said.

The vote passed the new charter without reports of violence like that which followed elections in 2008.

In the currency market, the Kenyan shilling continued to gain against the dollar on Monday with dealers saying they were expecting further appreciation in the coming days, although they warned on some consolidation.

Commercial banks traded the shilling at 79.30/40 per dollar from 79.45/55 at Friday’s close.

The shilling crossed over the key 80.00 level against the shilling and stocks at the NSE index closed a new high for 2010 on Thursday, despite thin trading.

“We’ll likely consolidate a bit but the bias is for a stronger shilling, boosted by positive political risk and a positive economic outlook globally,” Mr Moses Kiboi, the head of trading at Citi Bank told Reuters in an interview.

On the NSE, Stock brokers are betting on the peaceful adoption of the new Constitution to help boost foreign investor and institutional participation, feeding the market with demand to lift the sluggish trading.

“As a frontier market, Africa always presents a higher risk investment destination. The peaceful adoption of the new Constitution is however injecting confidence back into the Kenyan stock market,” said Jan van der Does de Willebois, the head of equities at Dyer and Blair Investment Bank.

The share of foreign investors’ participation has declined from 72 per cent in January to 24 per cent last month, according to NSE data.

Their reduced participation has been tied to uncertainty over the referendum and profit-taking after appreciation of the undervalued shares they bought on the low in quarter one.

Analysts say foreign investors are diversifying into other African markets such as Nigeria, hence the decline in their share of the local market.

“Prices of several counters have shot up by 10 per cent to 20 per cent, discouraging foreign investors who usually look for undervalued stocks,” said Mr Mahmoud Hussein, the head of equities trading at Apex Africa Investment Bank, citing the example of Equity Bank’s share price that has appreciated to Sh27, a growth of over 35 per cent in the past three months.

Players see the market remaining on a steady recovery path although there are also expectations that some profit-taking will lead to a dip in share prices in the medium term.

Blue chip stocks with high average daily turnovers such as Safaricom, East Africa Breweries, KCB Bank, Equity Bank, Mumias Sugar and Kenya Airways have remained the investors’ favourite picks.

This has seen foreign trades account for more than 50 per cent of the shares in the quarter ended June.