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Capital Markets

Virus-hit NSE stocks shed half a trillion

The sell-off had intensified on Friday when the market shed Sh120 billion
The sell-off had intensified on Friday when the market shed Sh120 billion, prompting the NSE to halt trading midway through the carnage. FILE PHOTO | NMG 

Stocks listed on the Nairobi Securities Exchange #ticker:NSE (NSE) have lost Sh573 billion of their value over the past two months as the spread of the coronavirus and other economic headwinds spark an exit of foreign investors.

The value of all the stocks on the Nairobi bourse stood at Sh2 trillion on Friday compared to Sh2.6 trillion on January 10 – the peak seen so far this year.

Safaricom #ticker:SCOM , KCB Group #ticker:KCB , Equity Group #ticker:EQTY and East African Breweries #ticker:EABL (EABL) accounted for about 72 percent of the paper wealth erosion over the period.

The telecommunications firm closed with a market value of Sh975.5 billion, the first time it has slipped below the Sh1 trillion mark since February last year.

Over the two-month period, Safaricom has shed Sh338.5 billion. It was followed by Equity, whose market value dropped by Sh48.4 billion, KCB (Sh39.6 billion) and EABL (Sh15.8 billion).

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The sell-off had intensified on Friday when the market shed Sh120 billion, prompting the NSE to halt trading midway through the carnage.

"We halted trading at 2.38pm for 30 minutes," said Geoffrey Odundo, the NSE’s chief executive.

"The rules allow us to halt trading if the NSE 20 Share Index declines by more than five percent."

The decision effectively meant that trading will resume today since the market closed within the 30 minutes.

Similar circuit breakers have been used twice this past week by the New York Stock Exchange (NYSE) as investors dumped stocks fearing a global recession.

Temporary suspension of trading is an attempt to facilitate orderly transactions by giving investors time to think and see if they want to buy shares.

"Markets around the globe continued to be on a free fall this trading week, as investors sought flight to safety on widespread panic as COVID-19 spreads with the first case reported in Kenya (Friday)," stockbroker Apex Africa Capital said in a brief to clients.

"At the local bourse, the market plunged hard with the NSE 20 dropping 5.3 percent to close at 2124.78 points, necessitating trading to be put to a halt. Foreigners continued to exit with the trend expected to sustain."

Economic dislocation

The government on Friday confirmed Kenya’s first case of the disease which has killed more than 3,000 worldwide and caused economic dislocation.

On Friday, most of the stocks, including blue-chips like Safaricom, BAT Kenya #ticker:BAT , Equity Group, KCB Group, Jubilee Holdings and Bamburi Cement #ticker:BAMB, dropped by a range of between 1.3 percent and the maximum margin of 10 percent. Safaricom, for instance, earlier in the day touched lows of Sh23.5 before recovering to close 5.45 percent down at Sh24.35.

KCB fell 7.1 percent to Sh42.65 while Equity dropped seven percent to Sh41.9. Insurer Sanlam Kenya and East African Cables receded 10 percent each to Sh13.95 and Sh1.71 respectively, though on thin volumes.

Analysts at Standard Investment Bank (SIB) attributed the sell-off to the exit of foreign investors, adding that the stampede is not predictive of earnings prospects of Kenyan firms.

Foreign investors, who make up about 70 percent of daily trading at the NSE, have been net sellers in the past few weeks.

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

Their risk aversion has intensified in recent days owing to a confluence of factors, including the price of oil crashing to $35.6 per barrel and the declaration of coronavirus as a global pandemic.

The disease, which has an estimated mortality rate of two percent, is paralysing social and economic activities in countries where it has spread to.

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

At the NSE, the fears have outweighed expectations of dividend payments starting in April for most firms whose financial year ends in December.

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