Smaller firms at the Nairobi Securities Exchange (NSE) are leading the market in price gains this year, giving their investors a return of up to 60 percent at a time larger stocks are in the red due to foreign investor selling.
The top 10 gainers in the market since January are mainly firms with a small market capitalisation, including Limuru Tea, Crown Paints, Olympia Capital, Sasini, and Sameer.
Others are Williamson Tea, East African Portland Cement, BOC Kenya and Car & General.
NCBA, a tier one bank and the NSE’s 10th largest listed firm by market capitalisation, is the only outlier on the top 10 list of gainers this year.
These companies have recorded a year-to-date return of between 14 percent and 59 percent this year.
These gains, analysts say, have partly been driven by speculative trading, especially on those with a low nominal price.
Some like Williamson Tea and Crown Paints have also been helped by positive corporate actions such as higher dividends and rights issuances respectively, which have driven up demand and prices.
These small stocks, however, tend to see high volatility in prices, largely because of their low turnover which means a few small trades can shift prices significantly.
Small-cap companies tend to have much smaller customer bases, so their prospects are more uncertain in times of economic uncertainty. Many are also illiquid, making it also more difficult for an investor to take up or exit a position in the market.
“There tends to be a lot of volatility on these small cap counters and trends tend to be unsustainable since they're not backed by fundamentals. Once the share price moves up a bit, speculators who'd been holding the stock move to sell as quickly as possible which drives the share price back down,” said a dealer at a city-based investment bank.
The highest return in the year-to-date is on the Limuru Tea stock at 59.38 percent, followed by Crown Paints at 43 percent and NCBA at 31 percent.
Others are Sasini (24.06 percent) and Williamson Tea (20.38 percent), Sameer (22.38 percent) and Car and General (19.44 percent).
While the volumes dealt on these counters are minimal compared to those on large-cap stocks, they offer a savvy investor a chance to book gains at a time the bigger counters have been in the red.
In the year to date, the top five stocks by market capitalisation have all lost value, having suffered from foreign investor selling that has hit smaller markets globally due to economic uncertainty that has led to capital flight to developed economies.
Safaricom, the largest listed firm by market cap, has seen its share price retreat by 22 percent this year.
Other big companies have also seen their share prices trend in the negative this year, including are EABL (negative 7.3 per cent) Equity Group Plc (negative 7.9 per cent) and KCB (negative 6.6 percent).