Review incentives at capital markets to keep investors


Nairobi Securities Exchange trading floor. FILE PHOTO | NMG

The revelation that 97 percent of stock trading accounts have been dormant for years should spur regulators and other stakeholders in the capital markets into action.

It speaks to widespread investor apathy that comes on the back of disappointing returns, a major part of which can be traced to poor corporate governance among some Nairobi Securities Exchange-listed firms.

Most of the share accounts were opened during the 2000s boom which saw the listing of several companies, including KenGen and Safaricom.

Investor enthusiasm subsequently declined to the current levels where only 61,000 accounts have been active in the past two years out of the total of 2.03 million.

While the long-running overall bear market has a hand in shaking out investors, it is the major losses seen in several companies that has put off most people from buying shares.

ARM Cement, Kenya Power #ticker:KPLC , Kenya Airways #ticker:KQ and Mumias Sugar are among the firms whose debacle has cost investors more than Sh100 billion in wealth erosion and most of it represent permanent losses.

It is not a coincidence that government-owned companies have led to declining profitability, losses and even fraud.

The Capital Markets Authority (CMA) must step up its oversight role to boost investor confidence, including by removing insolvent companies from the stock market. Investor education is also important. The NSE #ticker:NSE , CMA and stockbrokers should invest in educating the public on the investment opportunities in the securities exchange.

Failure to recruit a significant number of new investors means the market will shrink even further in the coming years, leaving it to rely even more on foreigners.

Finally, there is a serious need to bring new credible companies to the market. As it stands now, the NSE is relying too much on Safaricom #ticker:SCOM , banks and East African Breweries Plc (EABL) #ticker:EABL .

The few companies dominate by market capitalisation and other measures of return including dividend payments.

There needs to be a review of whether the current incentives for companies going public are enough or private companies have other reasons for avoiding the stock market.

No effort should be spared to build a vibrant capital market as it has many benefits, including spreading wealth.