The Nairobi Securities Exchange (NSE) has added Sh85 billion in investor wealth in the last two weeks, showing no sign of pre-election jitters as retail investors continue to buy up cheap stocks.
The bourse’s market capitalisation stood at Sh2.21 trillion at close of trading on Friday, having gained four percent in two weeks.
The number of investors trading also went up week-on-week as they defied expectations of caution ahead of what is expected to be a tightly contested presidential election.
The number of equity deals rose to 5,402 last week from 4,765 the previous week, while traded turnover rose to Sh1.62 billion from Sh967 million previously.
The defiant market mirrors the situation in the run-up to the last elections in 2017 when the NSE gained Sh73 billion in the last fortnight to the disputed polls whose aftermath was characterised by nullification of presidential results and riots in the city.
Kenyans will tomorrow head back to the ballot to elect a successor to President Uhuru Kenyatta, from among four candidates. The two leading contenders are former Prime Minister Raila Odinga and Deputy President William Ruto.
The prolonged campaigns, which ended on Saturday, passed largely peacefully, giving investors confidence that the transition will not disrupt business and markets.
Local investors have been more active on the buying side of the market in recent weeks, taking up attractively priced shares from foreign counterparts who have been selling up and moving their capital to western markets in pursuit of higher interest rates that are on offer there.
Having shunned the market earlier in the year, they are now providing demand to counter the supply pressure caused by foreign selling, thus boosting share prices at the bourse.
“What we’ve largely been seeing is locals taking advantage of the low share prices and absorbing foreign selling pressure. While risks are still viewed as elevated, the robust earnings across multiple sectors are too attractive to ignore, hence investors are adopting a moderately optimistic long-term view that things will improve in a post-election environment,” said a dealer at an investment bank.
The outflows look set to continue, with inflation in western economies showing little sign of easing. In the US, which is grappling with 40-year high inflation, the US Federal Reserve was forced to raise its policy rate by 0.75 percentage points at the end of July to a range of 2.25 percent to 2.5 percent—from near zero in March.
Last week, England’s apex bank also made its biggest rate hike in 27 years —0.5 percentage points to 1.75 percent— as it battles a 13.3 percent inflation.
Key stocks such as Safaricom, EABL and Equity Group, which had sunk to multi-year lows towards the end of June on foreign selling pressure, have now rebounded with gains of 13 percent, 11 percent and 11.6 percent respectively in the past one month.
They have backed a Sh393 billion gain in market capitalisation at the NSE since June 27, when the bourse hit its lowest wealth level in over five years of Sh1.82 trillion.
These three stocks, alongside KCB, are the most preferred among foreign investors at the bourse owing to their high liquidity and solid fundamentals, which include consistent payment of dividends.
The continued recovery of the market will, however, depend largely on the post-election environment in the country, with any prolonged dispute over results likely to raise jitters in the market.
The September 1, 2017 annulment of the presidential poll by the Supreme Court, for instance, shocked the market, causing prices to tumble beyond the 10 percent daily limit and resulting in a half-an-hour stop of trading.
On the day, the market shed Sh92 billion in investor wealth and 3.5 percent in its benchmark NSE 20 index, indicating the potential shocks that the NSE would face in a volatile post-election situation.