Last week’s move by the Central Bank of Kenya (CBK) to raise borrowing costs to a 12-year high of 13 percent has further dampened trading activity on the Nairobi Securities Exchange (NSE), with analysts warning that the trend would prolong as investors shifted to fixed income assets.
On Wednesday, just a day after the apex bank’s announcement, the Nairobi bourse recorded a Sh9.8 billion paper wealth loss to close at a market cap of Sh1.435 trillion down from Sh1.445 trillion on Tuesday.
By close of trading on Tuesday the total valuation of equities stood at Sh1.429 representing a Sh16 billion loss from the rate review a week ago.
The NSE All Share Index (Nasi) also closed Tuesday’s trading down a point from Tuesday last week with the NSE20 -index retreating by four points over the one week.
Last week, foreign investors pulled out Sh63.2 million from the NSE, extending the previous week’s trend there they remained net sellers marking Sh101.8 million in net portfolio outflows.
Over the one-week period to Tuesday, large-cap stocks including Safaricom, KCB, and Equity banks recorded a bearish trend as their respective share prices posted five-day percentage changes at -1.86 percent, -5.69 percent, and -1.96 percent respectively.
“We hypothesise that investors continue to display a preference for the fixed income asset class on the back of elevated interest rates, a trend that is anticipated to strengthen further following the recent adjustment of the CBR rate,” observes Stellar Swakei, a senior research associate at Standard Investment Bank.
She explains that with the infrastructure bond currently open, the market is set to experience heightened activity within the fixed-income market relative to the equities market.
“That said, we opine that the pendulum will swing in favour of the equities market in the second half of 2024 on a likely softening of monetary policy. Fixed income will however remain a top pick in the year as investors bond with stability amidst the perceived risks,” she says.
Her sentiments are shared by Willis Nalwenge, an investment manager at Orient Asset Managers Limited, who says NSE activity will first rebound in the banking sector driven by the annual dividend harvest.
“On average we expect activities to remain low in the equities market as the Central Bank Rate (CBR) shoots from 12.5 percent to 13 percent and the issue of the February infrastructure bonds continues to favour the bonds market with secondary bonds trade surging by 14 percent in January 2024 compared to last December,” states Nalwenge.
‘We, however, expect activities to continue in the banking sector driven by dividend harvest despite CBK data showing a slowdown in profitability with November 2023 data showing a profit before tax drop of 5.2 percent year-on-year.”
Last month, foreign investors pulled out a total of Sh178.2 million from the NSE, marking a fifth straight month of withdrawals and stretching a run of capital flight from last year.
During the 12 months to last December, the bourse recorded a 27.5 percent fall in paper wealth amounting to Sh547 billion with the NSE’s market cap closing 2023 at Sh1.439 trillion.
