NSE wealth falls by Sh127 billion on profit-taking

Profit-taking by investors at NSE in the past two weeks has cut investor wealth at the bourse by Sh127.4 billion.

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Profit-taking by investors at the Nairobi Securities Exchange (NSE) in the past two weeks has cut investor wealth at the bourse by Sh127.4 billion over the period, led by bank stocks whose prices have fallen despite the shares qualifying for final dividends.

Investor wealth at the NSE had rallied to a one-year high of Sh1.84 trillion by March 27, fuelled by sharp gains on bank stocks as the lenders concluded their reporting period for the full year ended December 2023.

The market capitalisation—the measure of investor wealth— has now dropped to Sh1.712 trillion, attributed by analysts to profit-taking that has skewed the market by raising the supply of shares beyond the available demand. This has had the effect of lowering share prices.

The banking segment, which had seen most of its stocks rise to multi-month highs towards the end of March, has seen a collective drop of Sh44.42 billion in market capitalisation to Sh686.2 billion since March 27.

Safaricom, which also rallied in March ahead of its book closure on a Sh0.55 a share interim dividend, has shed Sh94.2 billion in market capitalisation since the end of March, to stand at Sh679.1 billion. The telco’s share price had retreated to Sh16.95 on Tuesday, from Sh19.30 on March 27.

“We have seen increased offers on the trading board, without the offsetting bids, hence the price trend. Broadly, it is about investors weighing the time value of their money, given that they can get higher yields on fixed-income securities,” said Ronnie Chokaa, an analyst at AIB-AXYS Africa.

The price rally in March, combined with a strengthening of the shilling against the dollar, had made a compelling case for foreign investors in particular to cash in on their shares.

A stronger shilling on exit compared to when one entered the market raises dollar returns on the shares, as the offshore investors get more of the foreign currency per shilling.

Foreigners made net sales worth Sh1.2 billion from the NSE in March, which accounted for half of the Sh2.3 billion worth of net exits seen in the market in the first quarter of the year.

At the same time, locals had raised their buying activity in the month, looking to cash in on the rising share prices.

In the first two weeks of April, the trend has turned, with foreign investors shifting to the buy side with net purchases worth Sh170 million, as locals sell up to book profits.

Looking forward, Mr Chokaa said, the market retains a positive outlook due to the stronger shilling and lower inflation that should lower costs for companies and raise the amount of disposable income available for investment for individuals.

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