NSE October share trade falls to 4-yr low, investors opt for bonds

September’s daily trade was Sh803 million, with the average for the first three quarters of the year being Sh634 million. Last year the market was averaging Sh820 million in daily trade.

On October 31, the NSE posted the lowest single-session turnover in over three years at just Sh63 million.

On the other hand, the government was able to raise Sh130.2 billion in accepted bids from primary Treasury bill and bond issues in October—which consisted of Sh100 billion in Treasury bills and Sh30 billion in an infrastructure bond.

“October recorded a low turnover partly due to the fact that most activity had shifted to the fixed income market (both primary and secondary). Most of the primary auctions recorded oversubscription and the daily bond turnover in the secondary market was equally high,” said Kingdom Securities senior analyst Mercyline Gatebi.

In the past year the NSE has firmly settled into a bear run that has seen the main index sink to a five-year low, whereby the NSE 20 share index is 20 per cent worse off in the year to date.

The stock market has also felt the effect of reduced activity by foreign investors as they show concerns over the continued low participation by their local counterparts.

READ: Treasury bills interest rates rise even as investors put in huge bids

Foreign investors have dominated the market this year with an average monthly participation level above 65 per cent. They are, however, cutting back on their trading, especially with prices recording limited movement.

“Foreign investors, who had accounted for 80 per cent of the trades in September cut back last month (to about 67 per cent). They are now at a point where they are seeing local investors not participating in the market and asking themselves whether the locals have information on the market that they (foreigners) don’t have,” said SIB head of research Francis Mwangi.

“Prices have also stagnated. Trading usually picks up when the prices of shares move one way or the other.”

The activity slowdown has also come at a time when the growth of money supply and credit has slowed down, with the latter particularly hurting the availability of capital for investors.

Analysis by research firm Stratlink Africa shows that the performance of the market has tended to track a similar path to that of money supply, with the main index rising when money supply rises and falling when the supply does.

Investors are therefore aware that as long as money supply growth remains subdued, there is unlikely to be a rally in the stock market.

In terms of outlook, Ms Gatebi said that November should see a pickup in activity especially from foreigners as most banks announce their third-quarter results and Safaricom releases its first half 2017 results.

The big losers of the reduced trading for the year in general, however, are stockbrokers, who will book lower brokerage commissions from equities.