The remarkable market rally at the Nairobi Securities Exchange (NSE) has failed to attract new investors, with the number of participants remaining unchanged over the past year.
The Capital Markets Authority (CMA) disclosed that the number of investors buying and selling shares at the NSE grew by only 2,621 to 1.3 million traders.
This means that the boom witnessed at the Nairobi bourse in the past two years has failed to reverse the drop in equity investors, which stood at over two million in September 2022.
The market value of the Nairobi bourse on Thursday closed above Sh3 trillion for the first time in the wake of the rally that began last year and was then turbocharged by Safaricom’s profit announcement last week.
The value of all stocks at the NSE stood at Sh3.006 trillion at the close of trading on Monday, down from Sh3.031 trillion on Friday.
This has pushed investors to pour cash into shares, with the NSE posting a return of 56.3 percent since the start of the year and increasing equity owners’ paper wealth by Sh1.1 trillion.
The return beats other asset classes such as bonds, real estate and fixed bank deposits.
But investors, notably retail, have continued to put extra billions of shillings in unit trusts and savings and credit co-operative societies (saccos) as the share of Kenyans on gambling continues to increase.
Analysts have attributed the unchanged growth in investor accounts at the NSE to inadequate awareness on how the stock market works and years of bearish runs.
“Historically, most Kenyans have been inclined to invest in traditional assets such as real estate. It’s only after Covid-19 that we saw retail investors come to the capital markets through money market funds, which were at the time offering double-digit returns,” said Teddy Irungu, a research analyst at Rock Advisors.
“Investor education is needed to show investors how the stock market works.”
Asset classes such as collective investment schemes (CISs) and saccos have rivalled the NSE as a destination for Kenyans savings and investments.
Assets under management (AUM) or funds held in unit trusts, including money market funds, hit a record Sh596.3 billion in June from Sh496.2 billion in March, with the number of investors in the asset class crossing the two million mark.
Deposits in saccos meanwhile hit Sh749 billion at the end of last year when the cooperatives recruited over 637,696 new members.
Betting has also emerged as competition for the bourse in recent years with the number of gamblers in the country estimated at more than 12 million.
A joint report by the Central Bank of Kenya (CBK) and the Kenya National Bureau of Statistics (KNBS) indicated that 40.4 percent of Kenyans aged between 18 and 45 years were actively betting, spending an average of Sh1,825 on punts each month.
Local individual investors’ stock trading accounts grew by 2,992 to 1,248,543, but has dropped from 1.93 million in September 2022.
The number of East African corporate and individual investors rose by nine and three respectively in the past year to September while junior investor, below 18 years, accounts increased by 21 in the period.
Local corporate investors bucked the growth trend, as their stock trading accounts dropped by 244, outpacing the reduction in foreign individual accounts at 141 and foreign corporate investors at 19.
The drop in foreign investor accounts coincided with continued exits of foreigners from the Nairobi bourse, enticed by relatively higher equity returns in advanced economies such as the US, which has entered the third year of its current bull-run, supercharged by artificial intelligence technology stocks like Nvidia and Microsoft.
The negligible growth in the number of investor accounts at the NSE leaves total participants at the bourse a far cry from the peak seen in recent years.
Over the last five years, the NSE has shed 728,985 investor accounts, with the bulk of the drop coming from local individual investors at 686,726.
As of September 2021, the number of investor accounts in local stocks closed at 2.03 million and included 1.935 million individual accounts, 74,578 local institutional accounts and 13,705 foreign individual investors.Some individuals are, however, deemed to be indirect investors at the NSE through proxies like fund managers.
“Most people are investing in the market through proxies... fund managers, money market funds and equity funds,” added Mr Irungu.
Analysts say the 2025 market rally has ridden on the back of lower returns on fixed income assets, including Treasury bills and bonds.
Gains in blue chips, including Safaricom, Equity and KCB, are behind the surge in the market valuation. Small caps like Sameer Africa and Home Afrika have chalked gains of 512 percent and 213 percent, respectively.
Investors have taken advantage of long periods of market undervaluation to pile into stocks on the expectation of a recovery and higher gains.
Corporate earnings are expected to sustain the momentum of stocks into the end of the year and early 2026 in what could favour blue chip counters that are largely preferred by foreign and local institutional investors because of their profits and dividends track record.
Banks are expected to continue growing their profitability on the back of cost containment measures as they find efficiency in digital investments and lower their loan-loss provision costs.
