Time flies with great content! Renew in to keep enjoying all our premium content.
Prime
Speculators drive up stocks of small listed firms
The blue chips have had lower gains partly due to foreign investor selling in January but local investor demand is helping limit the negative effect of these sales.
The number of small cap stocks at the Nairobi Securities Exchange (NSE) with outsized price gains has gone up this year as speculative trading takes hold in the market, despite the risk of losses on firms with weak fundamentals.
NSE market data shows that in the first five weeks of this year, TransCentury leads the market with a gain of 282 percent to Sh1.49 per share, followed by Home Afrika at 157 percent to Sh0.95, East Africa Cables at 148 percent to trade at Sh2.68, and Flame Tree Group by 110 percent to Sh2.10 per share.
Uchumi Supermarkets is also among the top gainers this year at 112 percent to Sh0.36 per share, despite the retailer being bankrupt for several years.
These companies lead a group of 14 which has made price gains of more than 30 percent in the year to date, including Sameer East Africa, Eveready East Africa, WPP ScanGroup, Longhorn Publishers, HF Group, Kenya Airways, CIC Group, Kenya Re, Sanlam and Kenya Power.
Most are coming off low nominal prices which analysts say have attracted speculators hoping to replicate the big gains of between 90 and 283 percent seen on the stocks of East Africa Portland Cement (EAPC), Kenya Power, Kenya Orchards, I&M Group, KCB Group and KenGen in 2024.
Last year’s top gainers were driven by improved profits which saw the companies resume or issue higher dividends.
In contrast, some of the firms on which the investors are taking a bet this year have been trading in penny stock territory due to years of poor financial performance and governance issues, raising concerns that uninformed speculators are driving unsustainable gains.
“Some look for the cheapest stocks and bet that they will appreciate, without considering that some of the companies are not fundamentally sound, and don’t have physical operations,” said Ronnie Chokaa, a senior research analyst at Capital A Investment Bank.
“They risk being locked in these investments down the road because of the normal low liquidity of such companies, and if they are forced to sell at a loss, it will affect their ability or willingness to participate in the market in future.”
Larger cap stocks, which prior to 2024 were largely outperforming their smaller peers in gains, have this year recorded more modest share price appreciation.
Safaricom, which is the largest company at the NSE by valuation and number of shares issued, has a year-to-date price gain of 6.5 percent to Sh18.15 per share, while Equity Group and EABL are up by 0.1 percent and 4.7 percent respectively to Sh48.35 and Sh183.75 per share.
The blue chips have had lower gains partly due to foreign investor selling in January —they made net exits worth Sh1.04 billion— but local investor demand is helping limit the negative effect of these sales.
Overall, only 14 out of the 62 active stocks at the NSE are trading at lower prices compared to the beginning of the year, reflecting the general positive sentiments around equities among investors at a time when returns from fixed income securities are on a downward trend.
