Life or long-term insurance companies bought Sh3.9 billion more in stock options as equities markets declined indicating the sector moved to expand holdings of blue-chip stocks on the cheap.
Insurance Regulatory Authority (IRA) data shows that quoted securities held by long-term underwriters rose from Sh24.4 billion in the first quarter last year to Sh28.3 billion by March this year.
The long-term insurers bought more stock despite facing a Sh1.9 billion decline in returns from the Nairobi Securities Exchange (NSE) signaling a long-term view of the stock picks.
A stock market slump saw the value of blue-chip stocks such as Safaricom, Equity Group, KCB, Cooperative Bank, and East Africa Breweries Limited (EABL) fall sharply creating an opportunity for local retail and institutional investors to pick up cheap stocks on foreign investor exits.
Share prices started falling in the wake of Russia’s invasion of Ukraine on February 24.
“Investment income (revenue, and profit and loss) decreased to Sh9 billion by end of first quarter 2022 [Sh10.96 billion a year earlier], which was mainly attributed to fair value loss on investments on equities in the capital market as market capitalisation decreased by 6.5 percent during the first quarter of 2022,” IRA chief executive Godfrey Kiptum said.
NSE share prices have been weighed down by lo 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 a flight of capital away from markets such as Kenya.
The low prices, however, give local investors an opportunity to buy the bottom and benefit from the recovery in prices.
Institutional investors realise with the NSE at record lows, they can still buy the counters very cheaply and earn outsized dividends.