Investor exits wipe out Sh42bn off NSE bank stocks

Listed banks lost Sh42 billion in the first six months of the year as heightened foreign investor exits slowed down activity at the Nairobi Securities Exchange (NSE), depressing share prices.

Co-operative Bank was the only lender whose market value increased nine per cent, leaving 10 listed rivals on a losing streak that defied strong financial results.

Mortgage lender Housing Finance recorded the biggest share price erosion of 39 per cent, followed by CfC Stanbic and National Bank which both lost 14 per cent.

Kenya’s largest lender by customer base Equity Bank whose share price shed only nine per cent was, however, the biggest loser in absolute terms having shed Sh16 billion in six months.

“Banking stocks had hit their fair value with investors moving to mid and small caps where opportunity still exists,” said Mercyline Gatebi, a research analyst at Genghis Capital.

Ms Gatebi said foreign investors have been rebalancing their portfolio with the recent exits from Kenya and a return to Nigeria, which recently concluded a peaceful election.

Investor wealth at the NSE has shrunk by Sh27 billion since January – a period that also saw small counters outperform blue chip companies signalling a difficult year for equity investors.

Market capitalisation (the market’s valuation of all listed firms) stood at Sh2.27 trillion at the end of last week compared to Sh2.3 trillion on the first day of the year.

“It is shaping up to be a disappointing year, partly due to modest earnings and market conditions,” said Eric Musau of Standard Investment Bank.

Mr Musau said the earnings posted so far had not been exceptional while the confusion surrounding the introduction of capital gains tax at the beginning of the year forced many investors to take a wait-and-see attitude.

The National Treasury has since scrapped the capital tax on traded shares and instead introduced a transaction-based levy of 0.3 per cent but Mr Musau reckons that this concession will offer only partial relief.

“This will not entirely lift the market because it still makes the Kenyan market expensive compared to most of its peers,” he said.

READ: Treasury scraps controversial 5pc capital gains tax after rejection

The indicative NSE 20 share index lost 6.2 per cent in the first six months of the year falling below 5,000 points.

Analysts at Genghis Capital do not expect the index, currently at 4,793 points, to hit the 5,000 mark before end of year.

Pension fund managers and institutional investors are turning away from the equities market to the fixed income market in anticipation of higher interest rates.

The Central Bank of Kenya recently increased its policy rate, the CBR, to 10 per cent from 8.5 per cent signalling that corporate depositors may start demanding higher returns from banks.

The equities market has been a top performing asset class in the past three years but that performance appears to have plateaued last year.

The market grew by 3.8 per cent last year, slower than the 19 per cent posted a year earlier and 28.95 per cent in 2012. These performances have seen the Kenyan bourse ranked among top three performers in Africa over the past four years.

Aly Khan Satchu, the chief executive of data vendor Rich Management, noted that the market could have been worse were it not for Safaricom’s 14.5 per cent gain, which is equivalent to Sh76 billion.

“The market has been on a bear run since end of March. The equity market has been a little disappointing, and fumbles like the proposed capital gains tax were unhelpful,” said Mr Satchu.

The top losers in the banking sector have also been hit by negative news in recent months further reducing investor activity on their counters.

Housing Finance is, for instance, battling a Sh726 million legal claim while National Bank has been fighting claims of mismanagement. CfC Stanbic recently lost its classification as a top tier bank underlining its shrinking market share.

The list of big losers also included non-banking stocks such as cigarette maker BAT, investment firm Britam and Pan Africa.

Agriculture firms, whose counters usually have little investor activity, were the best performers driven mainly by corporate announcements.

Kakuzi was the top gainer up 71 per cent or Sh2.5 billion. Limuru Tea, which announced a two-for-one share split, has shot up 62 per cent but at Sh1,248 per unit is out of reach for many retail investors.

Williamson Tea is up 61 per cent having declared a final dividend of Sh40 per unit and a bonus issue of one share for each held.

“Even the gains of the small caps are not on solid earnings but largely on corporate activity, so they may not be sustainable,” said Mr Musau.

The commercial and services sector lost Sh24 billion while insurance firms have shed Sh19.1 billion, manufacturing Sh14.5 billion and energy Sh2.6 billion.

Low turnover in the market also signals a difficult year for brokerages and investment banks which earn a commission based on the size of transactions.

The turnover has dropped by 11 per cent this year to approximately Sh84 billion at the end of May compared to Sh95 billion in a similar period last year.

There has also been little corporate activity compared to last year with Chase Bank, Housing Finance and Home Afrika being the only companies involved in capital raising since January.