Capital Markets

NSE defies virus to gain Sh123bn in past month

nse

The Nairobi Securities Exchange. FILE PHOTO | NMG

Summary

  • The Nairobi bourse notched up healthy gains in recent days as investors sought to buy stocks at a bargain, hoping for outsized capital gains when the stock market recovers.
  • The value of all the stocks stood at Sh2.145 trillion Tuesday compared to Sh2 trillion in April, but remains below the Sh2.6 trillion peak of January 10.

Investors at the Nairobi Securities Exchange (NSE) have gained Sh123.4 billion over the past month, riding on increased demand for Safaricom and bank shares by high-net-worth individuals that has cut the coronavirus-driven losses.

The Nairobi bourse notched up healthy gains in recent days as investors sought to buy stocks at a bargain, hoping for outsized capital gains when the stock market recovers.

The value of all the stocks stood at Sh2.145 trillion Tuesday compared to Sh2 trillion in April, but remains below the Sh2.6 trillion peak of January 10.

Safaricom #ticker:SCOM, KCB Group #ticker:KCB, Equity Group #ticker:EQTY, Cooperative Bank #ticker:COOP and East African Breweries Limited #ticker:EABL (EABL) accounted for about 93.6 percent of the paper wealth gain over the period, underlining the impact of the four counters in shaping the performance of the NSE.

The five had also accounted for about 72 percent of the paper wealth erosion when the bourse hit its lowest level in mid-March as the spread of the coronavirus and other economic headwinds sparked an exit of foreign investors.

Dealers reckon that demand from foreign investors and high-net-worth individuals is behind the rally happening against the backdrop of signs of economic recovery after Kenya eased Covid-19 lockdowns.

Genghis Capital Research Analyst Gerald Muriuki said the current rally is the result of a price correction as stocks hit rock bottom prices.

"This has mainly been price-action-driven rally. During the release of banking sector results last month, most of the banks had hit fresh 52-week low levels, mainly due to expectations of severe drop in financial results," Mr Muriuki said.

"This created a mismatch between valuations of the key banks and their market prices as other investors got an opportunity to buy at these low levels. Safaricom has been trading at a tight range of Sh27-30s for months, another price-action-related movement."

Safaricom has gained Sh74.12 billion or 59.3 percent of the Nairobi bourse gains over the past month, pushing its worth to Sh1.203 trillion or 55 percent of the total market valuation.

Banking counters also witnessed gains, with KCB adding Sh13.9 billion to its value, Equity Bank Sh11.5 billion and Cooperative Bank Sh8.5 billion. EABL gained Sh7.51 billion over the month.

Kenya’s economy is expected to grow by less than 2.5 percent this year, as more evidence of the economic damage caused by the health crisis emerges.

The projected growth rate will be a slide from 5.4 percent last year, battered by loss of jobs and a steep contraction in tourism and exports, especially in the three months to June.

But activities in the private sector have rebounded on the back of a gradual easing of the coronavirus containment measures in July, offering hope to NSE investors.

"It seems that the economy is gradually returning to normalcy, with fewer Covid-19 cases and a sense that the worst is behind us," said Lisa Kimathi, senior associate for research at Standard Investment Bank.

"As a result, investors are capitalising on the low prices with greater optimism of economic recovery. Foreign investors have so far recorded net inflows this month, resulting in profit taking by local investors." Ahead of the first coronavirus case in March, foreign investors accounted for about 70 percent of daily trading at the NSE. They were net sellers in March and April.

Analysts attributed the sell-off at the NSE to the exit of foreign investors, adding that the stampede is not predictive of earnings prospects of Kenyan firms.

Foreign investors had also been selling stocks in other markets, including the United States, Japan, the United Kingdom and Australia.

The pandemic paralysed social and business activities across the globe, prompting the International Monetary Fund (IMF) to forecast the worst economic fallout since the 1930s Great Depression, with only a partial recovery seen in 2021.

The scare is disrupting travel and supply chains and weakening demand for goods and services worldwide, raising the spectre of a substantial reduction in global economic growth.