NSE losses Sh74bn, retreats from highest level in three years

The Nairobi Securities Exchange (NSE) has shed Sh74.1 billion in one week of trading as investors cash out on the price gains that had lifted the bourse to a 36-month high of Sh2.634 trillion last Monday.

The combined investor wealth stood at Sh2.56 trillion as the market closed yesterday, dropping further from Friday’s Sh2.58 trillion as top counters, including Safaricom #ticker:SCOM, KCB #ticker:KCB and Equity #ticker:EQTY shed value.

Monday marked the fifth straight day of drops in market capitalization — marking a Sh74.1 billion slump since Monday last week when the bourse’s total value was its highest since May 18,2018 when it was recorded at Sh2.64 trillion.

Safaricom, EABL #ticker:EABL, KCB and Equity — which account for 81 percent of total NSE wealth — had lost Sh79.61 billion between May 10 and yesterday, triggering the market dip.

Analysts link the dip to profit-taking and portfolio rebalancing following weeks of price rallies on the back of positive investment sentiments in the market tied to falls in coronavirus infections and relaxed control measures.

Portfolio rebalancing is when investors sell or buy different asset classes to achieve a desired overall asset allocation of their money based on risk appetite.

“The fall is broadly attributed to profit-taking activities by investors. Safaricom #ticker:SCOM, KCB #ticker:KCB and Equity #ticker:EQTY for instance are at attractive price levels to cash out at a gain before starting to accumulate again,” said Churchill Ogutu, Genghis Capital senior research analyst.

Institutional investors and fund managers usually have a target of the maximum exposure of a particular share in their investment portfolio and sometimes this is exceeded when prices rally.

“The uptick in the prices of stocks such as Safaricom had diverged them away from the targeted portfolio weighting and so to bring it back, they have to sell,” said Mr Ogutu.

Safaricom stock had rallied to record high of Sh40.85 partly helped by investors’ rush to buy on news that the telecoms operator is close to securing an operating licence in Ethiopia.

The share, however, fell for the second day of trading, closing yesterday at Sh39 a piece from Sh39.40, meaning it has now shed Sh74.12 billion since last week Monday.

Banks have shed by 1.1 percent on average while EABL has lost 0.43 percent in the review period, contributing to the NSE decline.

KCB has lost Sh4.49 billion followed by EABL (Sh593 billion) and Co-operative Bank (Sh586 billion).

Investors are also repositioning themselves ahead of the release of the first quarter to March results, with eyes on the non-performing loans following the coronavirus-induced economic fallout.

Banks are already showing a recovery from coronavirus conundrum in profitability, with pretax earnings for the first quarter having hit Sh45.9 billion — the highest in the history of the sector.

The Central Bank of Kenya said this was as a result of expenses falling by 22.8 percent compared to a 4.6 percent decrease in income.

Stanbic Bank Kenya yesterday released its first quarter results with net profit rising by 23.1 percent to Sh1.9 billion as provisioning for non-performing loans (NPLs) fell by 1.2 percent to Sh0.6 billion.

Safaricom investors are expected to reposition themselves afresh when results of the Ethiopia telecommunication licence bid are announced.

A consortium led by Safaricom and another one by South Africa’s MTN Group were the only parties who made bids in the auction for two operating licences in the Horn of Africa country.

“Investors will start positioning themselves afresh after the outcome of the licence bid is announced. Generally, the next good support level should be at Sh35 per share,” says Mr Ogutu.

Support level is the price range within which buyers find attractive to purchase or enter into a stock.