The value of Safaricom at the Nairobi bourse has dipped below the Sh1 trillion mark on foreign investors’ flight in the wake of rate hikes in the US.
The telco was yesterday valued at Sh979.60 billion after its share price dipped to Sh24.45 from a high of Sh38.15 at the start of the year, translating to a paper loss of Sh548.9 billion over the period.
The plunge in the firm’s share price hit the valuation of Nairobi Securities Exchange (NSE), with market capitalisation falling below the Sh2 trillion mark that is similar to market performance when Kenya was battling Covid-19 restrictions like the nationwide curfew, which delivered layoffs, job cuts and business closures.
Safaricom, the country’s most profitable company, accounted for 82 percent of the NSE paper loss of Sh662 billion since the start of the year, underlining its dominance that is making it difficult for investors to gauge the performance of the bourse.
The bourse is being weighed down by a reduced appetite for emerging markets after a jump in interest rates in the developed markets such as the US, which are currently battling high inflation that has forced their central banks to adjust rates upwards.
The Federal Reserve on September 21 announced a third consecutive 0.75 percentage point increase in interest rates and signalled borrowing costs would remain high for an extended period.
The US central bank lifted its main interest rate to a range of 3.0 per cent to 3.25 per cent.
Smaller markets like the NSE have taken deeper hits because investors, particularly foreigners, get attracted to the western bonds and equities that are viewed as safe havens in times of global uncertainty.
This flight of capital to the US market — where inflation is at multi-year highs — has triggered price falls of blue-chip firms such as Safaricom, Equity Group and East Africa Breweries Limited (EABL) that are a favourite of foreign investors.
Net foreign investor outflow was recorded at Sh589.5 million in the week ending September 30, from Sh822.79 million recorded a week earlier.
“Company fundamentals are not the issue at the moment. The main reason behind the market slump is the western rate hikes, which are affecting emerging markets,” said an analyst at Genghis Capital.
The NSE market capitalisation yesterday dipped to a three-month low of Sh1.97 trillion having opened the year at Sh2.64 trillion.
“It is still a factor of local investors not being very active in the stock market as international investors continue to exit,” said Muathi Kilonzo, head of equities at EFG Hermes Kenya.
“There is just greater supply than there is demand and this is no different to how it has traded for a few months now.”
The dominance of Safaricom on the bourse yesterday dropped to 49 percent of the entire NSE wealth from a high of 63 percent.
The telco claimed at least half of the market wealth nearly two years ago and has been deepening its share of the NSE wealth since then.
Already, the Capital Markets Authority (CMA) has flagged the dominance of five companies — including Safaricom — in the 65-stock market as a big risk, with the performance of the telecommunications firm dictating whether the market goes up or down on any given day.
This outsize influence of the stock on the market is also seen in the daily traded volumes, where often it accounts for over half of daily shares traded at the bourse.
For investors, this has meant that holding Safaricom shares has become a necessity when building a portfolio, with its high liquidity and retention of value a magnet, especially for foreign investors.
A minimal fall in the Safaricom share price creates an impression that the market is underperforming despite other counters recording gains.