An investor at the NSE: Analysts have ruled out a long-term bear run, saying half-year earnings results are likely to reverse the downward movement. PHOTO | FILE
What you need to know:
Market analysts attribute the drop to a mix of factors, including the capital gains tax and a weaker currency but say market fundamentals remain strong.
Investors at the stock market have lost Sh149 billion in value over the past three months as share prices continue falling over currency fluctuation, price correction and the capital gains tax.
In the last week of February, the NSE 20 share index touched a seven-year high of 5,499 points with the NSE All Share index touching an all-time high of 177 points as the market capitalisation rose to Sh2.478 trillion.
But the bourse has since swiftly retreated and by close of trading on Thursday the NSE 20 Share and All Share indices stood at 4,928 and 166 points respectively— 11 and six per cent down — with the capitalisation having dropped to Sh2.328 trillion.
In addition to a price correction, market analysts attribute the drop to a mix of factors, including the capital gains tax and a weaker currency but say market fundamentals remain strong. They rule out chances of a prolonged bear run.
“Some stocks may have been overpriced, but this does not mean that the companies themselves are having any problems,” said Standard Investment Bank (SIB) analyst Eric Musau.
The decline has spread across the market except the single stock sectors of telecommunications (Safaricom) and investment services (NSE).
The telco is up 2.5 per cent in valuation by Sh16 billion to Sh653 billion, while the NSE counter is up 3.5 per cent (Sh136 million) to Sh3.94 billion.
The biggest decline by sector has come from the commercial and services, which is down 16.8 per cent over the past three months, representing a collective sector capitalisation decline of Sh16.4 billion to Sh81 billion.
Automobiles sector, made up of small cap counters, has shed a collective 15 per cent over the period or Sh592 million to Sh3.36 billion.
Among the large sectors in the market, manufacturing has shed 11.4 per cent in valuation (Sh42 billion) to Sh328 billion, banking is down 7.4 per cent (Sh68 billion) to Sh848 billion while insurance has shed 8.4 per cent (Sh12.2 billion) to Sh132 billion.
On individual counters, the largest decline in terms of capitalisation over the three month has come from the big caps, led by Equity Holdings that shed Sh31.4 billion, EABL down Sh25.3 billion, Britam (Sh13.6 billion) and BAT (Sh13.6 billion).
The big cap counters have been the most actively traded by foreign investors, who in March and April took out a total of Sh3.15 billion.
“What we have seen is selective selling by foreigners,” said Mr Musau. “CGT is still a factor, because there is an element of uncertainty over how investors are to pay and on whom the obligation to collect falls. It would help if there was clarity on the issue.”
The weaker shilling has also affected the stock market with the mop-up of liquidity by Central Bank of Kenya reducing the inflows and foreigners wary of exchange losses when exiting their portfolios.
“We are also seeing a trend of higher interest rates on fixed income— Treasury bonds and bills— making this segment more attractive to investors,” said ABC Capital corporate finance manager Johnson Nderi.
Analysts, however, say it may be early to declare a bear market given the impact that positive half-year earnings results may have.
“The silver lining is that earnings can change next quarter when some half-year and full-year results begin to trickle in. Together with the possibility of merger and acquisition activity in banking and insurance sectors, these are some of the market catalysts we are looking forward to before declaring a long-term bear run,” said Genghis Capital analyst Silha Rasugu.
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Note: The results are not exact but very close to the actual.
