Capital Markets

NSE sheds Sh294 billion in a month as foreigners flee

nse

Securities trader Mbuthia Irungu at Nairobi Securities Exchange (NSE) trading floor at the Exchange building in Nairobi on August 26, 2020. PHOTO | SALATON NJAU | NMG

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Summary

  • Investors at NSE lost Sh294 billion in a month following a sell-off by foreigners that has pulled down the value of the bourse to a 20-month-low.
  • Safaricom, East Africa Breweries Limited (EABL), Cooperative Bank, Equity and KCB Group led in shedding value in the wake of the sell-off.
  • The blue-chip stocks are a favourite of foreign investors who in recent days have been selling shares at the NSE, pushing the value of the stocks to levels witnessed last in October 2020.

Investors at the Nairobi Securities Exchange (NSE) lost Sh294 billion in a month following a sell-off by foreigners that has pulled down the value of the bourse to a 20-month-low amid a profit and dividend boom.

The market capitalisation dropped to Sh2.176 trillion on Friday after a steady fall that started on April 13 when the bourse’s value stood at 2.471 trillion.

Safaricom, East Africa Breweries Limited (EABL), Cooperative Bank, Equity and KCB Group led in shedding value in the wake of the sell-off.

The blue-chip stocks are a favourite of foreign investors who in recent days have been selling shares at the NSE, pushing the value of the stocks to levels witnessed last in October 2020 when the country was under restrictions of movement to contain Covid-19.

Safaricom, the country’s most profitable company, accounted for 71.4 percent or Sh210 billion of the paper loss, underlining its dominance that is making it difficult for investors to gauge the performance of the bourse.

The telecommunications operator last week announced payment of Sh30.04 billion after an earlier interim payout of Sh25.6 billion despite a 1.7 percent drop in net profits.

Bank stocks that were expected to lift the market after lenders reported triple-digit growth in profits and outsize dividends remained muted at the NSE.

The share prices of KCB Group, Equity Group and Co-operative Bank have dropped by between 22.5 percent and 13.75 percent since mid-February despite the three lenders declaring a record Sh26.8 billion in dividend payouts — nearly triple what they paid last year.

Analysts say foreigners are exiting the NSE for foreign markets following the US hiking interest rates that have made dollar investments more attractive, dimming the appetite for riskier assets in emerging markets.

“It is mostly being driven by global trends, with the higher US interest rates driving high-risk rating for countries like Kenya and lower prices for equities. Even in the Eurobonds we are seeing higher rates,” said Eric Musau, a research analyst at Standard Investment Bank (SIB).

“Fundamentally most companies are doing well posting good results and paying dividends. Despite that, foreigners are still selling.”

The bulk of firms at NSE have announced double-digit profit growth on the back of Kenya’s economy rebounding on easing of Covid-19 restrictions.

Official data showed economic activities expanded 7.5 percent in 2021 compared with a contraction of 0.3 percent a year earlier when activities almost grounded to a halt because of measures to contain the spread of the pandemic.

Banks have led the profit and dividend boom.

The nine lenders, including Equity, KCB, and Co-op Bank, have proposed to pay their shareholders Sh51.7 billion for the period, up from Sh18.8 billion in 2020.

The payout marks a new record, surpassing the previous peak of Sh31.7 billion seen in 2019.

The enhanced payout has come after a 73 percent growth in cumulative gross profit to Sh194.8 billion for the banking sector in 2021, as it recovered from the Covid-19-led economic slowdown of 2020.

The dividend payouts represent a turnaround for the top bank owners, who had to endure tough times in terms of dividends in 2020 as the lenders adjusted to a leaner operating environment due to Covid-19.

The dividend boom also comes after the Central Bank of Kenya (CBK) loosened restrictions on shareholder payouts as the country recovers from the Covid-19 economic fallout.

The CBK in August 2020 asked commercial banks to seek its approval ahead of paying dividends for the year ended December, which saw top lenders freeze payments.

But the lenders have turned the corner following the record profits as they seek to expand their loan books and shift from government securities.

This outlook has failed to excite investors at the NSE.

Equity Group, the largest lender by assets, shed 8.5 percent on its share price over the past month to Sh45.5 per unit, translating to a Sh16 billion loss.

KCB Group, on the other hand, traded at Sh35.70 per share, a drop of 17.3 percent or Sh23.9 billion.

Mr Musau said the elections scheduled for August may not play a big role in influencing trends at the NSE, arguing the economy is expected to remain resilient as companies emerge stronger from Covid-19 economic hardships.

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