NSE hits 16-year low as blue chip stocks plunge over coronavirus fears

The Nairobi Securities Exchange #ticker:NSE (NSE) main index dropped to a 16-year low on Friday as foreign investors withdrew amid turmoil in global markets over the coronavirus outbreak and profit-taking hit banking stocks.

The benchmark NSE 20 Share Index, which captures the movement of select blue chip stocks like Safaricom #ticker:SCOM and East African Breweries Limited #ticker:EABL (EABL), closed at 2,337 points, down from 2,409 on Thursday.

The last time it was near this level was on September 26, 2003, when it closed at 2,328 points when Kenya was at the infancy of Mwai Kibaki’s administration, which is associated with the country’s economic resurgence and a stock market boom that created many millionaires.

Analysts have argued that the sell-off is part of a global trend as investors dump stocks and seek shelter in fixed income assets including government bonds.

"The market is falling primarily because of risk aversion by foreign investors in the wake of the coronavirus," said Martin Mwirigi, an analyst at Standard Investment Bank (SIB).

He said that foreign investors, who make up about 70 percent of daily trading at the NSE, have been net sellers in the past three weeks.

They have also been selling stocks in other markets including the United States, Japan, the United Kingdom and Australia.

The virus has wiped equity values due to mounting concern that the outbreak will stunt economic growth and corporate profits.

Stocks favoured by foreign investors and which make up the NSE-20 share index like Safaricom, Equity Bank #ticker:EQTY, EABL and Bamburi Cement #ticker:BAMB have shed values over the past week. Owners of bank shares have lost billions of shillings over the past month as investors take profits from the rally that followed the removal of the cap on commercial lending rates.

All the 10 banks have reported declines in share prices since February 1 on what stock dealers linked to increased supply of the lenders’ stocks amid thin demand ahead of the results announcement season, hurting investors.

Stock broker Apex Africa Capital noted that major indices around the world including the FTSE 100, Nasdaq and Dow have all dropped 11 percent or more in one week.

Apex noted that KCB #ticker:KCB, Equity and Safaricom saw the most selling pressure in recent days as measured by the value of foreigners’ exit trades.

First cases of the flu-like illness, also known as Covid-19, were reported in countries as far apart as China, Mexico, Nigeria, Iceland and New Zealand and the number of confirmed infections has in recent weeks risen to nearly 84,000 while deaths from the virus have surpassed 2,800.

Weakening demand

The disease, which has an estimated mortality rate of two percent, has paralysed economic activities in parts of China where most consumer goods are manufactured.

Other countries to which the disease has spread such as Japan and Italy have also responded by curtailing public meetings, with numerous businesses shutting down plants and stores.

The scare is disrupting supply chains and weakening demand for goods and services worldwide, raising the spectre of a substantial reduction in global economic growth.

At the NSE, fears have outweighed expectations of dividend payments starting April for most companies whose financial year ended in December. These include banks, which are set to announce their results from next week.

Kenya Power #ticker:KPLC , major banks and top manufacturers including Bamburi Cement and EABL are among the firms that have suffered major share price drops in recent days.

Co-op Bank’s #ticker:COOP share price also dropped by one of the largest margins on Friday at 6.8 percent to close at Sh13.55. It was followed by DTB #ticker:DTK which shed 6.5 percent to Sh100.

Investors also aggressively sold other banks stocks including Equity Group that fell 5.7 percent to Sh45.2 and KCB which declined 3.6 percent to Sh44.9.

This is despite expectations that banks’ earnings prospects have improved on the back of scrapping of lending rates effective last November 7.

The return to free floating rates will enable the institutions to make higher margins from lending, especially on loans to riskier borrowers. Banks have, however, been slow to re-price their loans upwards after the Central Bank of Kenya (CBK) signalled that it is against such a move at this time.

The operator of the bourse itself, NSE, saw its stock drop 5.6 percent to Sh10.1. The company has issued a profit warning for the year ended December, warning investors that its earnings in the period will fall by at least a quarter. It reported a net profit of Sh190.6 million in 2018 and recorded a weaker performance in the half year ended June 2019 when its net earnings stood at Sh24.2 million.

Bamburi’s stock fell five percent to a new low of Sh54. The company’s share price was already on a free fall before the latest slide as investors reacted to its reduced earnings that are partly the result of fierce cement price wars.

EABL’s share price declined 2.8 percent to Sh194.2 as it closed its books for the interim dividend of Sh3 per share.

Kenya Power, which reported the lowest profit in 16 years of Sh262 million in the period to June 2019, saw its stock fall six percent to Sh2.30. Safaricom was barely changed on Friday but has shed 15 percent over the past one month.

The market sell-off lifted the dividend yield of firms that make cash distributions to their shareholders, offering an attractive entry opportunity for those seeking incomes. StanChart #ticker:SCBK , for instance, now has a yield of 9.5 percent based on its usual payout of Sh19 per share.