NSE hits 19-month low in New Year selloffs

The slide in Safaricom’s #ticker:SCOM share by more than a third at the NSE #ticker:NSE has pulled down the stock market to a 19-month low, reflecting the outsized influence the telecommunications firm wields on the market.

Safaricom, which hit an all-time high of Sh33.50 last April, is also trading at a 19-month low of Sh21.45 a share attributed to the heavy foreign investor sales seen on the counter in the past year. This values the firm at Sh859.4 billion.

Investor wealth at the bourse stood at Sh2.055 trillion Monday, having fallen by Sh47 billion in the first week of the year, and by Sh510 billion in the past 12 months.

This resulted in the main indices taking a beating last year, with the NSE 20 share index ending 2018 23.7 percent down at 2,833 points, and the NSE All Share Index 18 per cent down at 140.43 points.

“Safaricom, which accounts for about 42 percent of total market capitalisation at the NSE, was the worst performing top mover at -6.8 percent week-on-week…the telco closed at its 19-month low weighed down by sustained foreign selling,” said Standard Investment Bank in its latest weekly market report.

In the first trading week of 2019, the two indices are already in the red, both down by 2.2 percent in closing Monday at 2,771 points for the NSE 20 and 137.35 points for the NSE All Share Index.

The telco carries more influence on the all share index, which is market cap weighted, compared to the price weighted NSE 20 Share Index.

This has sometimes led to divergence in the performance of the two indices in instances where Safaricom’s price is moving in the opposite direction compared to other blue chips that carry a high nominal price.

Safaricom also accounts for 41.6 percent of the issued shares at the bourse, meaning that on most days it accounts for a large slice of trading turnover. In yesterday’s trades, the firm had a turnover of Sh134.8 million, representing 77 percent of the market’s total of Sh174.3 million.

This trend has been maintained due to the lack of similarly large listings at the bourse since it came into the market in 2008.

Heavy exits

In 2018, the stock took a hit due to heavy exits by foreigners, who held a net selling position of Sh13.7 billion on the stock.

The stock has been seen as a prime option for foreign investors in the past due to its large liquidity, in spite of trading at a premium with a price to earnings ratio of 15.4 times –compared to a market average of 10.9— and a price to book ratio of 6.9.

Foreigners also prefer trading in other large blue chip stocks such as EABL, Equity Bank and KCB.

These stocks also saw heavy net foreign outflows last year, at Sh7.8 billion for KCB, Sh4.3 billion for EABL and Sh3.1 billion for Equity Holdings.

It was part of a wider selloff at the bourse by the external investors, who made net sales of Sh29 billion during the year, attributed to the flight of capital back to the safe haven markets such as the US where interest rates have been rising in the past year.

While analysts are hopeful that the current low share prices at the bourse will act as a catalyst to encourage investors to buy stocks, and in the process lead to a recovery, concerns remain on the lingering effect of the sales by foreign investors.

“The equities market is expected to recover in 2019 as cheap valuations currently exist in the market which is bound to interest investors,” said Genghis Capital analyst Patrick Mumu.

“A key risk (however) is the rate normalisation in developed economies such as the US. This is borne by the fact that rising rates in developed economies heralds foreign outflows in emerging economies.”

The potential recovery, analysts say, is also dependent on a higher level of participation in trading by local investors, who largely shied away from the market last year due to the falling prices.

Market data compiled by Standard Investment Bank shows that in 2018, foreigners accounted for 63 per cent of equity turnover, even though they hold just 20 per cent of the issued shares at the bourse.