Investor losses hit Sh120bn as NSE falls to two-year low
A Nairobi Securities Exchange worker monitors stock trading. Investor wealth has fallen to Sh2.18 trillion since the year started and analysts predict more losses. PHOTO | FILE
What you need to know:
Local investors have been cautious when buying shares of the risk of getting locked into higher buying prices at a time the market is on a downward trend.
This means the market has been denied an important source of demand to counterbalance the selling being done by foreign investors, who have recorded five straight weeks of net sales.
The Nairobi Securities Exchange (NSE) has fallen to a two-year low under selling pressure as investors across the board lost Sh120 billion to the market bear.
The key NSE 20 Share Index has dipped 10.5 per cent to 4578 points since the beginning of the year, while investor wealth at the bourse is down to Sh2.18 trillion over the period.
“The market downturn has been as a result of weak fundamental factors emanating from the frail shilling and other structural challenges. We have experienced a lot of sell-side pressures from both local and foreign investors which have contributed to the throttling of stock prices,” said Genghis Capital analyst Mercyline Gatebi.
“Ideally the weakening shilling has been one of the key concerns for foreign investors who have been exiting to curb any further (dollar) losses on their portfolios.”
She added that there remains an anticipation, however, that the market may hold steady in the short term due to positive sentiments that have started to come into the market, with the shilling also showing some resilience in recent days.
Local investors have been cautious when buying shares of the risk of getting locked into higher buying prices at a time the market is on a downward trend.
This means the market has been denied an important source of demand to counterbalance the selling being done by foreign investors, who have recorded five straight weeks of net sales.
This month, foreign participation in equity turnover has averaged 72 per cent week-on-week, with the net outflows standing at Sh2.62 billion.
According to Standard Investment Bank analyst Eric Musau, there has also been portfolio rebalancing and profit taking in the market as people look for stocks with more favourable valuations.
“We have also seen that when interest rates go up the performance of equities tends not to be good, as investors shift their focus towards debt instruments,” Mr Musau said.
Agriculture and telecommunications (Safaricom) are the only counters to record a gain in the year.
The agriculture stocks are up 46 per cent or Sh6 billion to Sh19.1 billion, while Safaricom has gained 10 per cent to Sh623 billion in market cap.
The worst performing sector in the NSE for the year is the commercial and services, which has seen a valuation loss of 19.3 per cent or Sh18 billion to Sh77 billion.
The banking segment has shed 9.3 per cent or Sh79.8 billion in capitalisation to stand at Sh776.2 billion, while manufacturing counters are 7.2 per cent down to Sh326.5 billion.
The decline has seen investors shifting to dividend stocks, which helps in countering the losses made in share price.
“Those who are still in the market have now moved strategies from capital gains to dividend paying stocks, which require them to hold for a longer period, hence the reduced activity. The top three gainers are all paying dividends between June and July; that’s where the market is,” said ABC capital analyst Joshua Otiende.
“We project a recovery but this year will fall way below the performance the NSE witnessed since 2012.”
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