Capital Markets

NSE unchanged before chaos hit election tallying centre

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

The stock market recorded limited movement on Monday after closing trading before Deputy President William Ruto was declared the winner of the presidential elections amid chaotic scenes and rejection of the results by four commissioners of the electoral commission.

The Nairobi Securities Exchange (NSE) gained Sh2.4 billion to close trading at Sh2.291 trillion in a day a majority of stock prices remained unchanged and investors traded cautiously.

This is a departure from market movement witnessed when voting opened last Tuesday, with market valuation rising Sh90 billion on Wednesday and Thursday, before retreating by Sh30.1 billion on Friday.

It remains to be seen how investors will react to Tuesday’s trading that will reflect the split at the Independent Electoral and Boundaries Commission (IEBC) over the results.

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The market closed at 3 p.m. and the announcement, which was delayed amid scuffles and allegations of vote rigging, came after 5.30 p.m.

“The split of the IEBC commissioners is set to worry investors and they are likely to take positions if the results end up with a legal challenge,” said Eric Musau, the executive director for Research at the Standard Investment.

“The ideal situation is where there is a winner and a concession by the loser.”

Four of the seven members of the IEBC refused to endorse the announcement, saying the results were “opaque”.

Mr Odinga’s party agent earlier alleged that there were “irregularities” and “mismanagement” in the election, but they have not stated their intentions to challenge the elections in the Supreme Court.

During trading at the Nairobi bourse, there was limited movement in prices of large stocks such as Safaricom, KCB Group and East Africa Breweries Limited (EABL), which often drive the NSE, leading to the flat market capitalisation.

Twenty-seven stocks, including Safaricom, saw their prices end the day unchanged, while 20 gained and 16 shed value on Monday.

The number of deals dropped to 831 from 978 on Friday, but the value of shares that exchanged hands rose two-and-a-half times from Sh89 million to Sh222 million on account of bigger deals on Safaricom, which accounted for half of the 9.08 million shares traded.

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In the three days leading up to the Tuesday poll day, the stock market was gaining an average of Sh16 billion per session, as it shrugged off concerns that there might be jitters normally associated with tightly contested elections in Kenya.

It continued its gains after the elections, adding a total of Sh90 billion in market cap on Wednesday and Thursday, before retreating by Sh30.1 billion on Friday as Safaricom’s valuation slid by Sh26 billion.

The sentiment in the market, according to analysts, has been that of optimism that there will be gains after the elections, hence the rush last week to buy up stocks that are now deemed fairly priced.

“NSE has always performed well during election years with the exception of 2007. Key market events help shape the performance cycle – elections, rates capping, government transitions and political events,” said investment bank AIB AXYS in a market report shared during trading.

Local investors have been buying at a time when their foreign counterparts are selling and shifting capital to western markets where rates have been raised in a bid to counter higher inflation.

Last week, foreign investors drew Sh514.14 million in net outflows from the NSE, adding to the Sh763.98 million in net outflows recorded the previous week.

The ugly turn of events post-closure of trading on Monday is, however, likely to bear on the market from today, especially if it leads to a protracted dispute over the outcome of the elections.

The support for the market from local investors has mirrored the situation in 2017 when the NSE gained Sh73 billion in the two weeks to the disputed polls, which led to the nullification of presidential results.

The chaos that followed the conclusion of the 2017 polls, however, rolled back those pre-election gains.

The September 1, 2017 annulment of the presidential poll by the Supreme Court 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.

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This year’s optimism has been built on the promise of a peaceful election, which would reassure investors that there would be no disruptions in the economy, which is coming off a difficult period caused by the Covid-19 pandemic and the Russia-Ukraine conflict.

In the currency market, the shilling retreated further against the dollar, a similar margin to the average daily depreciation recorded last week.

The local currency traded at an average of 119.43 units in the afternoon, compared to an opening price of 119.36 units to the dollar.

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