Investors snap up cheap NSE stocks in Sh192bn week rally

Securities trader Mbuthia Irungu at Nairobi Securities Exchange (NSE) trading floor at the Exchange building in Nairobi on August 26, 2020. PHOTO | SALATON NJAU | NMG

The Nairobi Securities Exchange (NSE) has turned bullish, lining the pockets of investors with a Sh192 billion jump in paper wealth in just one week as investors snapped up falling stocks.

Market capitalization has risen back above Sh2 trillion, following a month-long dip below the psychological mark when stock market prices retreated on a capital flight to safe havens abroad.

Stocks of leading blue-chip counters including, Safaricom, Equity Group, KCB, Cooperative Bank and East Africa Breweries Limited (EABL) have driven the rally as local investors pick up cheap stocks that had slumped on foreign investor exits.

Listed companies on the stock market are recovering from a slump in share prices that were weighed down by a reduced appetite for emerging markets after a jump in interest rates in the developed markets.

Developed markets such as the US, which are currently battling high inflation that forced their central banks to adjust rates upwards have led to the capital flight away from markets like Kenya.

The low prices however gave local investors an opportunity to buy at the bottom and benefit from the recovery in prices.

“Kenyan stock prices had declined rapidly, in the process companies have become very cheap relative to their recent trading multiples and when weighed against the macro risks they became attractive. This has led to new buying from both local and international investors,” Egyptian brokerage firm EFG Hermes Director and Head of Equities Kenya, Muathi Kilonzo said.

“You’ve seen Eabl and Safaricom rebound quickly - two of the stocks that bore the brunt of the sell-off,” he said.

Safaricom shares have gained Sh136.2 billion within the week to push the company’s market capitalisation to Sh1.06 trillion up from Sh927.5 billion a week earlier. The telco suffered one of the worst routs in the market that saw it slump to Sh23.01 which made the counter that has sustained profitability over the years very attractive.

EABL has gained Sh23.3 billion over the week, KCB share value rose by Sh10.4 billion while Equity shareholder paper wealth jumped Sh15 billion. Co-operative bank gained Sh1.1 billion. Market analysts say it is a relief rally raising doubts on whether it would be sustained going forward.

Analysts said with elections coming up the market will most likely tread carefully until the outcome is clear and the country can start to work through its macro-economic challenges

“It is a relief rally in our view following sustained selling in recent weeks. Some of the valuations started looking really attractive, worth considering despite macro risks,” said Eric Musau, a research analyst at Standard Investment Bank (SIB).

The recent gains are a blessing to local institutional and retail investors who had the opportunity on buying the dip.

Institutional investors realise with the NSE at record lows, they can still buy the counters very cheaply and earn outsized dividends since these companies are actually very profitable even under the current market conditions and are rewarding their shareholders very well.

The drop in banking share prices for instance has lifted the dividend yield on stocks to a range of between 5.4 percent and 14.7 percent, enhancing returns for income-focused investors.

The average dividend yield on Standard Chartered Bank Kenya, Absa Bank Kenya, KCB, I&M, Equity, Co-op Bank, DTB, NCBA, and Stanbic Holdings now stands at 9.08 percent.

Retail investors who are the majority in the market have been dormant for a while with the Central Depository and Settlement Corporation (CDSC) saying nearly 97 percent of equities accounts used for trading at the NSE have lay idle in the past two years.

Only 61,000 of the 2.03 million share accounts at the CDSC have participated in trading over the two years, representing a three percent share.

CDSC has been trying to urge dormant users to resume trading after participation fell to a low of 1.2 per cent of total accounts in 2021.

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