The number of equity trades at the Nairobi Securities Exchange (NSE) declined by a third in the first quarter of 2016 compared to a similar period last year pulling turnover down by Sh10 billion.
Data from the NSE shows that there were 83,117 equity trade deals carried out in the bourse over the three months to March, compared to 125,915 in quarter one 2015.
The quarterly equity turnover declined to Sh36.36 billion in quarter one 2016 from Sh46.34 billion in a similar period last year, according to data compiled by Standard Investment Bank (SIB).
Although the market has arrested the slide that saw the NSE 20 share index close 21.9 per cent lower last year, share valuations remain subdued and price movement limited, a scenario that is hurting active trading.
Sterling Capital analyst Eric Munywoki said the equities market had seen some outward shift of capital to fixed income starting in the second quarter of last year due to rising interest rates at a time when shares were losing value.
“Local fund managers and high net worth retail investors preferred to start the year holding on to liquid cash positions anticipating that high interest rates would continue, thus we saw them adopt a wait-and-see attitude in the markets in the quarter,” said Mr Munywoki.
“On the foreign side, the first quarter of the year has seen some concern over the effect of the Federal Reserve’s rate actions, the economic uncertainty in the EU and China’s economic slowdown, which has caused a bit of capital redeployment from emerging markets to safer bets like the US.”
In addition to cautious trading as a result of the uncertainty, investors also found it more expensive to borrow capital to invest in the market due to the high interest rates.
The number of shares traded also fell, by 19 per cent from 1.62 billion in 2015 to 1.31 billion this year.
According to SIB, the average daily traded turnover in the first quarter stood at Sh586.4 million, compared to Sh745 million a year earlier.
Trading for the quarter was largely concentrated on the four largest counters in the NSE —Safaricom, East Africa Breweries Ltd, Equity Holdings and Kenya Commercial Bank—which had a combined traded turnover of Sh26.5 billion, or 73 per cent of the market’s total.
These counters benefited from high foreign investor interest during the quarter, with the foreigners accounting for an average of 71 per cent of all trades on these counters during the three-month period.
Overall for the market, foreign participation went up from 62 per cent in January to 68 per cent in March, on track to beat last year’s average of 61 per cent.
For market intermediaries, the lower turnover and trading numbers point to lower earnings in brokerage commissions in the period.
The stockbrokers are coming off a tough 2015 during which their net earnings dropped by 35 per cent, due to costs rising while revenues were falling.