NSE outperforms Africa bourses in bank shares rally

The Nairobi Securities Exchange (NSE) outperformed its peers in Africa on the back of better returns from Safaricom and banking stocks that were attractive to foreign investors.

The NSE's All-Share Index (NASI), which tracks the market value of shares of all listed firms, gained 18.5 percent to close the year at 166.41 points. As a result, the bourse raced ahead of Johannesburg Stock Exchange (JSE), which returned 8.24 percent last year and Morocco’s Casablanca Stock Exchange (7.72 percent).

Nigeria's and the Egyptian bourses declined by 14.6 and 19 percent respectively.

Last year’s performance was in contrast to 2018 when Nairobi’s All-Share Index fell by 18.0 percent, a bigger decline compared to the four bourses that also posted negative returns in the year.

The reversal in fortunes made the Kenyan bourse attractive to foreign investors seeking capital gains returns.

NSE chief executive Geoffrey Odundo said the stable shilling had added to the attractiveness of the bourse, with investors seeing lower currency fluctuation risk relative to other emerging markets.

“The fact that it outperformed other key markets means investors were more comfortable with main metrics such as stability of currency and free entry and exit of funds,” said Mr Odundo.

Foreign investors at the NSE made net inflows of Sh1.86 billion in 2019. This was in contrast with back-to-back net selling of Sh28.9 billion and Sh11.9 billion in 2018 and 2017 respectively.

Despite the gains, the NSE remains relatively smaller compared to the South African, Nigerian and Egyptian bourses. The JSE, for instance, has a market capitalisation of Sh25.5 trillion from the 375 firms listed on the South Africa bourse. The NSE has 62 firms with a market value of Sh2.5 trillion while Nigeria has 116 firms valued at Sh3.73 trillion while Egypt is at Sh4.23 trillion.

Safaricom and banks played a key role in the NSE turnaround in 2019.

“With regards to banking, we observed price rallies ahead of the interest rate capping law vote in Parliament and this continued after the law was repealed,” said Renaldo D’Souza, head of research at Sterling Capital Limited,.

The Nairobi bourse made a paper wealth return of 16 percent -- or Sh399 billion -- to hit Sh2.5 trillion.

The positive return at the NSE was on the back of Safaricom and bank stocks, which account for nearly 80 percent of the bourse’s market value. However, more than half of the NSE firms -- or 36 out of 62 companies -- posted a negative return.

Safaricom’s share movement has a huge bearing on the overall market performance given that it accounts for 49 percent of the NSE market value, which grows to 79.8 percent when banking stocks are included.

The share price of the telecoms operator rallied to hit Sh31.65 at the close of the year, up from Sh22.20 at the start of the year — reflecting a 42.57 percent growth over the period.

Mr D’Souza said investors were buying into Safaricom on the back of its recent financial report and outlook.

The telecoms giant posted a 14.4 percent jump in its half-year net profit to Sh35.65 billion on strong M-Pesa and mobile data revenue growth.

Kenyan bank shares also rallied following the removal of the cap on commercial loans, which had curbed lenders’ profits. Investors have rushed to buy the stocks at the Nairobi bourse on anticipation of increased gains in coming days as others eye long-term gains in the form of dividends.

Yesterday for instance, Safaricom was the biggest mover of shares, followed by Equity and Barclays Bank and KCB. Cumulatively, they traded more than 15.5 million shares.

The biggest beneficiaries of the bank stocks’ rally include pension funds, wealthy individuals and foreign institutional investors who hold stakes worth billions of shillings in the lenders.

Equity was the top gainer among the 12 listed banks with a share appreciation of 51 percent to close trading at Sh52.57 at the close of the year, followed by KCB (42 percent) and NCBA, which is the product of a merger between CBA Group and NIC, at 32 percent.

Overall, the equities market reversed the Sh400 billion loss it posted in 2018, helping it beat bonds, real estate, land and bank savings in rewarding investors.