Capital Markets

Bear market pulls NSE 20 share index to eight-year low

Stockbrokers on the trading floor of the Nairobi Securities Exchange. PHOTO | FILE
Stockbrokers on the trading floor of the Nairobi Securities Exchange. PHOTO | FILE 

The Nairobi Securities Exchange (NSE) 20-share index Wednesday fell to a eight-year low of 3,047 points, saddled by a dip in blue chip counters that are the main drivers of activity at the bourse.

The index’s fall to the level last seen on October 28, 2009 left investors Sh110 billion worse off in just a week and a half of trading this year.

The market cap (the value of all shares listed at the exchange) stood at Sh1.82 trillion Wednesday compared to Sh1.93 trillion at the beginning of the year, extending the pain for investors who had to contend with a Sh120 billion erosion of their wealth last year.

On Wednesday, the bourse shed 36 points or 1.2 per cent of market capitalisation after only five counters recorded share price gains out of the 63 that actively trade at the exchange.

Major stocks like BAT Kenya, Safaricom, Equity Bank, East Africa Breweries Ltd and Co-operative Bank all shed value on the trading floor, putting the index on the path of decline.

“The market-cap weighed indices continued on their losing streak dragged down by price dips across most large caps,” said Standard Investment Bank in their daily share market report.

Cigarette maker BAT share price fell by the largest margin of 5.6 per cent to close at Sh850.

Beer maker EABL, another blue chip, is currently trading at a three year low of Sh223. The brewer so far stands as the worst performing big cap counter at the bourse this year, having shed nine per cent since December 30.

Safaricom closed Wednesday’s trading at a five-month low of Sh18, having shed 1.1 per cent in the day and six per cent since the year began.

The telecom firm’s good performance in 2016 was one of the few bright spots in the market, helping investors gain some respite from the paper losses they made in the other segments of the market such as banking and manufacturing.

Safaricom was the most traded share Wednesday, mainly by foreign investors, accounting for half of the day’s market turnover of Sh578.9 million.

Co-operative Bank topped the list of losers in the banking counters having shed 3.6 per cent to close the day at Sh12.15 while Equity bank was down 2.7 per cent to close at a three-month low of Sh26.75 a share.

The NSE has struggled to shake off a bear run that has now persisted for nearly two years, forcing investors to seek higher returns in alternative investment options such as fixed income.

The current bear run started at the beginning of March 2015, and has since seen the 20-share index fall 45 per cent from 5,499 to 3,047 points, while market cap has dipped by Sh632 billion.

Local institutional investors such as fund managers have largely shifted to fixed income, denying the NSE’s equities market the necessary trade volumes it needs to spark a rally in share prices.

Investors starved of positive returns have also been quick to take profits on any stock that shows signs of a price gain as they did with financial services firm Britam last week when the counter gained 26 per cent on the back of news that the International Finance Corporation (IFC) had bought a stake in the firm.

Analysts say that the outlook for the market is likely to remain muted, with expectations of lower earnings for the key banking sector that is expected in lower share valuations of listed lenders.

Foreign investors, who have been the dominant traders at the Nairobi bourse over the past 12 months, are also likely to reduce their exposure as they shift their capital to the US, which is expected to raise its interest rate this year.

“We expect the equities market to register a decline in net foreign inflows in 2017 as investors exit stocks listed on the Nairobi bourse due to expected lower earnings from commercial banks, uncertainties over political and social risks as Kenya undertakes general elections, and expectations of a more aggressive rate hike cycle by the US Fed that will make the US market more attractive,” said Cytonn Investments in their 2017 market outlook.

A bright spot could, however, come should the NSE launch its derivatives market as planned this year, with the new products likely to attract new investors.

The new depository platform being launched by the CDSC in April will cut the settlement cycle to a single day, which could spur higher trading figures.