Kenya’s stock market trailed other African exchanges in the size of funds raised through initial public offerings (IPOs), coming eighth last year. PICTURE | PWC
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Uncertainty surrounding the implementation of the capital gains tax (CGT) is affecting foreign inflows into the equities market, January figures and analysts suggest.
January was the lowest monthly total in two years and compares badly with Sh31 billion recorded in December 2014.
Foreign investors drew out a net of Sh283 million from the Kenyan stock market in January, according to data compiled by Standard Investment Bank.
Uncertainty surrounding the implementation of the capital gains tax (CGT) is affecting foreign inflows into the equities market, January figures and analysts suggest.
Foreign investors drew out a net of Sh283 million from the Kenyan stock market in January, according to data compiled by Standard Investment Bank. The foreign net outflow came after healthy net inflows in November and December that stood at Sh2.5 billion and Sh1 billion respectively.
This came in a month of depressed market turnover, down 60 per cent compared to a similar period in 2014 to stand at Sh9.82 billion. January was the lowest monthly total in two years and compares badly with Sh31 billion recorded in December 2014.
According to Kestrel Capital chief executive officer Andre DeSimone, the Nairobi Securities Exchange (NSE) is disadvantaged by the tax, also applicable to foreign non-resident investors, when one considers that competing markets such as Mauritius, Uganda, and Tanzania that have a capital gains tax regime exempting the foreign category.
“It will affect the inflows picture. The custodian banks that handle investors’ money are not being tasked with assessing and collecting this tax, and are therefore referring them to brokers, who are not qualified or able to offer any tax advice,” said Mr DeSimone.
“Kenya constitutes a small part of the exposure for those that trade portfolios worth millions of dollars across the world, and these investors are likely to put their activity here on hold due to the uncertainty and concentrate on other parts of the world.”
He added foreigners trade through multiple accounts often under different brokers and through omnibus accounts that hold investments for different people under one basket.
This makes it hard to track the real gains or losses made from sales of a single counter held in multiple accounts under different brokers.
Daily traded turnover at the NSE has gone down by half to Sh467 million compared to the average of Sh880 million for 2014.
The market is coming from a record year in turnover, which grew to Sh231 billion in 2014 from Sh155 billion the previous year. The big cap counters have seen a big reduction in turnover in January compared to December.
Safaricom saw a traded turnover of Sh2.03 billion compared to Sh4.5 billion in December, followed by KCB whose turnover dropped to Sh1.37 billion from Sh3.9 billion.
EABL turnover dropped to Sh1.18 billion from Sh3.2 billion, while that of Equity stood at Sh1.32 billion from December Sh2.8 billion.
Analysts say with the valuation of shares remaining intact, the negative effect on the market is unlikely to persist over the longer term if the issue is resolved soon though.
The main indices gained during the month in spite of the limited trading, with the NSE 20 share index up 1.9 per cent and the NSE All Share index up 1.8 per cent.
“Interestingly, domestic sellers have become cautious about selling which in fact has allowed the market to run up this year,” said Aly Khan Satchu, director of data vending and advisory firm Rich Management.
Lower trading volumes would, however, hurt the earnings of market intermediaries who depend on commissions, at a time many of them have returned to profitability after a lean period over the last four years.
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