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Listed blue-chip firms defy Covid to grow NSE wealth

Nairobi Securities Exchange
The Nairobi Securities Exchange. FILE PHOTO | NMG 

The share prices of select blue-chip stocks at the Nairobi bourse have gone up since Kenya imposed a dusk-to-dawn curfew over Covid-19 that has hit businesses, underlining the diverging stock market and household fortunes.

Since March 25, when the nationwide curfew was imposed, the Nairobi Securities Exchange (NSE) has been on the rise, adding Sh254 billion to shareholders’ wealth.

This has made the NSE one of the few places to make money in an economic environment that has seen plunging corporate sales, unpaid staff leaves as well as salary and job cuts.

Safaricom #ticker:SCOM, KCB Group #ticker:KCB, Equity Group #ticker:EQTY and East African Breweries Limited (EABL) #ticker:EABL accounted for more than 80 percent of the paper wealth gain over the period, underlining the impact of the four counters in shaping the performance of the bourse.

The four firms had also accounted for about 72 percent of the paper wealth erosion when the bourse hit its lowest level in mid-March as the spread of the coronavirus and other economic headwinds sparked an exit of foreign investors.

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The stock gains are the product of investors seeking to buy shares at a bargain, hoping for outsized capital gains when the stock market recovers.

By Friday, the value of all the stocks on the bourse stood at Sh2.146 trillion, compared to Sh1.89 trillion on March 25. However, they remained below the Sh2.6 trillion peak of January 10.

Separate reports released earlier this week by the Kenya National Bureau of Statistics (KNBS) and the Kenya Association of Manufacturers (KAM) have painted a gloomy picture in the financial health of households and companies.

A half of the households surveyed by KNBS reported that they were either unable to pay their rent or had barely managed to make partial payments, citing reduced incomes, temporary job losses and delay in income as some of the reasons.

Manufacturers have also said that 79 percent of them were facing financial constraints, while 69 percent admitted that they were struggling to pay their employees.

The World Bank forecasts that Kenya’s economic growth will slow down to 1.5 percent this year, and contract one percent in the worst-case scenario as the restrictions to stop Coronavirus sap demand from trading partners like Europe, and disrupt both supply chains and domestic production.

Analysts say that this divergence reflects a market that is largely driven by services firms, in contrast to the fact that majority of Kenyans are employed in the agriculture, SME and informal sectors which have borne the brunt of the restriction measures put in place to contain Covid-19.

“The highest weighting on the NSE is services companies like Safaricom and banks, which is not a reflection of the economy that is largely agrarian,” said Stanbic regional economist for Eastern Africa Jibran Qureishi.

In the Kenyan economy, job losses and pay cuts have become a common feature for many companies that are struggling to find business, with the repercussions being felt from the beginning of April.

Motor vehicle assemblers for instance reported that new unit sales fell by almost half last month to 594 compared to 1,127 sold in the same month last year.

The virus has also caused a drop in power consumption. Usage fell by 13.2 percent or 129.5 million units last month to a 32-month low of 848.6 million kWh, a result of lower consumer demand and firms and industries cutting back on their operations. “The regulations put in place have resulted in shut down of industries and massive job losses. Fear looms of an economic recession with far greater magnitude than the 2008/2009 global financial crisis,” said KAM in its survey conducted jointly with consultancy firm KPMG.

Since March 25, Safaricom has seen its market valuation increase 20 percent or Sh196.3 billion, while Equity Bank is up 11.1 percent or Sh13.5 billion. EABL has gained 10.7 percent or Sh12.4 billion in the period. KCB and Co-operative Bank are up 7.1 per cent and four percent respectively, equivalent to market cap gains of Sh7.7 billion and Sh2.6 billion.

These firms are the five largest and most liquid at the bourse, accounting for 75 percent of the NSE’s total market cap. Shares are also more in tune with the global investor sentiment, due to the influence of foreign investors.

“Equities will largely be driven by valuations on a comparative basis against markets such as Egypt and Nigeria for sub-Saharan Africa, and mirror global risk sentiments, hence these divergences with the rest of the economy,” said Mr Qureishi.

A similar divergence of the markets and the economy has been seen on Wall Street, as the American stock market is commonly referred to, which is enjoying gains that have been backed by renewed bond buying by the US Federal Reserve.

The S&P 500 is trading at a two-month high, and the Nasdaq a three-month high, backed mainly by gains on tech giants like Amazon, Google, Microsoft, Facebook and Apple, which are deemed by investors to have a good chance of weathering the Covid disruptions.

Meanwhile, unemployment in the US has gone up from pre-Covid levels of four to 16 percent, the worst it has been since the Great Depression of the 1930s.

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