Investor wealth in steep drop as NSE bull run halts

Investor wealth at the Nairobi Securities Exchange has retreated by Sh100 billion in the past two weeks as concerns over the government’s taxation and spending plans halted the recent bullish run.

The total value of shares listed at the bourse, also called market capitalisation, has dropped from a high of Sh1.71 trillion to Sh1.61 trillion as at Tuesday’s close of trading.

The NSE 20-Share Index, which tracks changes in prices of 20 select stocks, has lost six per cent (300 points) from a peak of 5,006 points reached at the end of May.

The government on June 13 announced a raft of tax measures to finance its Sh1.6 trillion budget, which included a suggested re-introduction of capital gains tax, possibly reducing returns for investors at the stock market.

“Although it has not been officially implemented, we have seen some investors develop jitters over the proposed capital gains tax and whether it will extend to the equities market. The aspect of profit taking after the price rallies of May cannot be ruled out as well,” said Standard Investment Bank (SIB) research analyst Brenda Kithinji.

Outgoing permanent secretary at the ministry of Finance, Joseph Kinyua, was quoted on Wednesday by Bloomberg News as saying that capital gains tax would only be levied on property, and not the stock market.

(Read: Kenya dismisses investor worries over capital gains tax plan)

The new tax is, however, not included in the Finance Bill 2013, indicating that it may be introduced through a total overhaul of the earlier law shelved in 1985.

A Sh329 billion deficit in the Budget, to be financed through domestic and external loans, has also rattled investors as it signals a possible increase in interest rates, slowing down economic growth.

On Tuesday the bourse recorded its biggest single-day decline for this year when it shed 2.2 per cent to close at 4,701.2 points, driven down by falling value in the big cap counters, insurance and banks stocks.

(Read: Capital gains tax seen as threat to markets)

The price indicator index has now fallen below the April average of 4,765 points. But over a one year period from May 2012, the NSE 20-Share index is still up by 1,019 points (3,682 points to 4,701 points).

Investor wealth at the NSE grew by Sh118 billion in May, helped by a bullish run that has lifted valuation of blue chip stocks to record prices.

The surge in market capitalisation was driven by increased trading of large cap stocks, which analysts attributed to increased foreign investor demand and lower interest rates on government securities.

In May, the three largest companies at the NSE saw their value rise by a combined Sh88 billion, with East African Breweries Limited (EABL) gaining Sh49 billion, Safaricom Sh22 billion and Equity Bank Sh17.6 billion.

However, these counters have had a downturn in June, shedding value totalling to Sh129 billion in the month-to-date, and accounting in large part for the overall drop in NSE market cap.

The biggest drop has been recorded by EABL, which touched an NSE record valuation of Sh334 billion on May 22 at a price of Sh423 per share. It has since dropped back to Sh336 a share.

Safaricom has also dropped from its valuation of Sh294 billion to Sh276 billion, with the share trading at Sh6.90 down from the high of Sh7.55.

The large bank stocks of Equity and Kenya Commercial Bank have been on a downward trend as well, with Equity dropping in value by Sh19 billion from a high Sh135 billion to Sh116 billion after its share dropped from Sh36.50 at the beginning of June to Sh31.50.

KCB has shed Sh20 billion in value to Sh107 billion in the period from mid May.

Ms Kithinji noted that the outlook for the market remains positive in the long term — although bank stocks could come under pressure if interest rates do not go up as this would hurt earnings.

The FTSE NSE Kenya indices have also recorded loss of value in the past one month after consistent gains in the past one year.

The FTSE NSE 15 Index lost 5.5 per cent to Sh23.86 billion in net capitalisation in the week to June 14 while the FTSE NSE Kenya 25 Index lost 5.6 per cent to Sh29.54 billion.

The FTSE NSE 15 Index stood at 153.67 points as at June 17 while the FTSE NSE 25 Index was at 157.93 points.

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