Investor wealth at the Nairobi Securities Exchange (NSE) has climbed to a two year high of Sh2.025 trillion as multiple stocks continue trading at near annual highs in an increasingly bullish market.
The NSE’s market capitalisation —the measure of investor wealth— last touched the current level in October 2022, while the benchmark NSE 20 Share Index closed at a four year high of 2145.52 points.
This rally in prices has seen stocks such as Kenya Power, East Africa Portland Cement (EAPC), KenGen, Kenya Orchards and I&M Group record gains of more than 100 percent over the last 12 months, while larger firms such as KCB Group, Safaricom, EABL, Equity Group and Standard Chartered Bank Kenya have made double digit price gains.
There has been an increase in demand for equities as returns from fixed income assets continue to narrow due to the recent slide in interest rates on government securities.
Net returns from Treasury bill rates have now fallen to single digits from highs of 16 percent three months ago, with investors responding by reducing their exposure to these papers in new auctions.
Analysts say this will likely push capital to equities, given that valuations are still below pre-Covid 19 pandemic averages, meaning that some dividend yields are now beating T-bill returns.
“By and large interest rates are going down…therefore in this quarter we expect increased flows into the equities market,” said Ronnie Chokaa, a senior analyst at Capital A Investment Bank.
Ongoing rate cuts by the US Federal Reserve are also expected to result in capital outflows from the world’s largest economy to emerging and frontier markets, helping markets such as the NSE reset the heavy foreign outflows of recent years, which contributed significantly to a depressed market.
In 2024, foreign investors cut their net exits from the NSE to Sh16.5 billion from Sh19.08 billion in 2023.
The 2024 outflows were, however, inclusive of a one-off sale of shares worth more than Sh14 billion by foreign owners of Bamburi Cement in a buyout offer made by Tanzanian firm Amsons Group.
An increase in foreign inflows will benefit the share prices of large blue chips in which these investors tend to concentrate their activity. Smaller cap counters have, on the other hand, been benefitting from an increase in demand from local investors, who had in previous years shunned the equities market as they piled into government bonds.
Over a 12-month period, Kenya Power has led the market with a gain of 405.8 percent to Sh6.98 per share, its highest price since May 2018.
Others with large gains are EAPC at 254.4 percent to Sh28.35, Kenya Orchards at 259 percent to Sh70, KenGen at 106.5 percent to Sh4.13 and I&M Group at 102.3 percent to Sh35.40 per share.
Among the top five stocks by market capitalisation, KCB leads with a gain of 90.6 percent in the past year to Sh42.80 per share, followed by Co-operative Bank of Kenya at 56.8 percent to Sh17.80.
EABL has added 45.1 percent to its share price to close at Sh179.50 yesterday, while Equity Group and Safaricom are up by 33.1 percent and 28.5 percent to Sh47.60 and Sh17.80 respectively.
Overall, only 18 out of the 62 actively traded stocks at the NSE are trading at lower prices compared to a year ago, reflecting the general positive sentiments around equities among investors.
