Loss-making firms have dominated the top 10 list of stocks on the Nairobi Securities Exchange #ticker:NSE (NSE) that recorded price gains since the start of the year despite Covid-19-related economic disruptions.
A review shows that stocks of firms such as Kenya Airways #ticker:KQ, Uchumi Supermarkets #ticker:UCHUM, Sameer Africa #ticker:FIRE, and East African Portland Cement #ticker:EAPCC (EAPCC) registered substantive price gains between January and September.
This is in contrast to the bourse’s overall bearish run which saw the NSE-20 share index that tracks the price movements of select 20 stocks dip by 802.2 points to 1,852.19 points last month.
The NSE-25 share which tracks the price movement of select 25 stocks also shed 841.79 points to end last month at 3,258.78 points.
KQ shares, for example, rallied by 83.25 percent to Sh83.25 percent before it was suspended from trading in July to pave the way for the government buyout process. The rally was despite the airline posting a 67.3 percent jump in loss to Sh14.33 billion, extending the streak of losses that started in 2013.
The review period also saw shares of Sameer Africa, which last returned a profit in 2013, rise by 11.59 percent to Sh3.85.
Shares of loss-making and debt-ridden Uchumi and EAPCC increased by 3.45 percent and 2.41 percent during the period—a trend analysts linked to speculative local retail investors who are after short-term gains.
“Most of these small stocks do not trade based on fundamentals. It is usually more of speculative activities and even the volumes backing those gains are usually small,” said Gerald Muriuki, a research analyst at Genghis Capital.
“For instance, when the government announced that it was moving in to nationalise KQ, most retail investors rushed in to buy so that they can profit from that buyout.”
Also in the list of gainers are stocks of small firms such as Olympia Capital (4.48 percent) and agricultural stocks—Eaagads (30.2 percent), Sasini (23.84 percent), Kakuzi (13.24 percent) and Kapchorua Tea (1.88 percent).
“Gains in agricultural stocks have been supported by the decision to maintain dividends despite their performance not having been strong,” said Mr Muriuki.
The gains in loss-making and small firms are in contrast with the performance of the five biggest stocks which account for 76 percent of all the investors’ wealth at the NSE.
The top five stocks—Safaricom #ticker:SCOM, Equity #ticker:EQTY, EABL #ticker:EABL, KCB #ticker:KCB and Co-operative Bank #ticker:COOP —dropped by 5.11 percent, 32.35 percent, 13.65 percent, 27.93 percent and 27.52 percent respectively between January and end of September.
The price dips in the large stocks has seen the combined wealth of NSE investors dip by Sh392.35 billion to Sh2.147 trillion during the review period.
Head of research at AIB Capital Sarah Wanga reckons that stocks which are mostly in the hands of retail investors have outdone the large stocks that heavily depend on foreign and institutional investors.
“Retail investors are speculative in nature and go looking for short-term opportunities whereas foreign and institutional investors take a long term view and are therefore driven by fundamentals,” said Ms Wanga.
Banks restructured loans worth Sh1.12 trillion or 38 percent of the total loan book between March and August due to the coronavirus-induced economic hardships that have hurt borrowers’ ability to repay.
Borrowers defaulted a record Sh45 billion in the six months to August, sending non-performing loans ratio to 13.6 percent—the highest since August 2007 when it stood at 14.41 percent.
“If a stock is heavily traded based on fundamentals, investors will react if there is any information or occurrence that seems to weaken those fundamentals,” said Mr Muruki.
Other popular stocks such as Bamburi #ticker:BAMB, East African Cables #ticker:CABL, Kenya Power #ticker:KPLC, and TransCentury #ticker:TCL are down 70.56 percent, 43.53 percent, 42.24 percent and 36.8 percent respectively.
The NSE has in the past few weeks registered improved activity as foreigners, who had fled the Nairobi bourse in a global rush to safety in fixed income assets on the back of Covid-19 shocks, started trooping back.