Capital Markets

NSE outperforms regional peers despite bear run

A Nairobi Securities Exchange staff attends to a client. PHOTO | SALATON NJAU
A Nairobi Securities Exchange staff attends to a client. PHOTO | SALATON NJAU  

Kenya’s stock market has outperformed key competitors Nigeria and Egypt in the past year despite the ongoing bearish run, data on African stock exchanges show.

The Nairobi Securities Exchange (NSE) All share index shed 10.6 per cent in value in 2015, compared to a 21.3 per cent of the Nigeria Stock Exchange All share Index and a 29 per cent decline in the Egypt Stock Exchange EGX 100 index.

Among the six second-tier markets in Africa, Morocco and Tunisia recorded lower declines than the NSE, while Zimbabwe was the worst performing, falling by 30 per cent. The tier-one Johannesburg Stock Exchange was in the red as well recording a fall of 3.5 per cent.

The NSE competes with the peer bourses in Africa for foreign investor dollars that have been key in driving the growth of smaller markets seen over the past few years.

“There has been broad-based weakness in emerging markets and frontier stock markets. When Nairobi is compared with Nigeria and Egypt, it has outperformed,” said Aly-Khan Satchu, chief executive of advisory and data vending firm Rich Management.

The NSE has since March 2015 been on a bearish run that has seen investor wealth decline by Sh251 billion for the year, with larger cap stocks especially hurt by foreign investor outflows.

This has seen the NSE 20 share index perform significantly worse than the All share index, dropping 21.9 per cent during 2015.

According to analysts, the African markets are now competing for a smaller pot of foreign investor dollars. These investors are increasingly shifting their investment portfolios to cheaper and less risky markets such as the US, hurting both the African equity markets and currencies.

The US Federal Reserve raised its base rate by 0.25 percentage points last month signalling higher returns from the US market for investors. Another rise in the rate is widely expected to come in March and is likely to keep pushing capital back to the US markets at the expense of smaller riskier markets.

Investor sentiments

This year, analysts are cautious on the prospects of the market reviving, especially due to the lower earnings by listed firms that have dampened investor sentiments.

“While valuations are not as stretched as at the beginning of 2015, (market valuation currently at 12.7 times price to earnings compared to 16 times as at the beginning of the year) earnings growth is much weaker, and the operating environment continues to be unfavourable,” said investment firm Cytonn Investments in a market summary for the year.

Further, dollar returns in African markets remain lower than local currency returns due to the poor performance of currencies across board against the dollar on the continent.

The NSE’s dollar returns for the year stood at a negative 20 per cent, compared to -27 per cent in Nigeria, -34 per cent in Egypt and -30 per cent in Zimbabwe, which uses the dollar as part of its basket of legal tender.

Morocco and Tunisia’s stock exchanges had dollar returns of -15.6 per cent and -10.4 per cent respectively. The shilling closed the year down 12.5 per cent against the dollar, but the volatility that saw it drop to a four-year low in the middle of the year has abated.