Nairobi Securities Exchange (NSE) is holding discussions with National Treasury and Capital Markets Authority (CMA) with a view to lowering the 0.3 per cent transaction levy, introduced during this year’s budget. The idea is to make the Nairobi bourse more attractive and less expensive to investors.
“We are engaged in discussions on the new levy, which will be effective from January next year, on areas such as the quantum and whether this levy will apply on the sale, buy side or both. We are also yet to agree on what happens in the intervening period , now that Capital Gains Tax on transactions at the bourse, has been scraped,” NSE Chief Executive Officer George Odundo said in an exclusive interview with The Standard.
The NSE has insisted on a lower transaction levy in order to make the market more competitive. This is happening at a time when both the NSE 20 share index as well as turnover figures have plummeted in recent weeks.
Available figures from the bourse’s monthly trading highlights indicate that between the month of May and June, 2015, market capitalisation fell from Sh2.341 billion to Sh2.302 billion while the number of shares traded declined from 684 million to 681 million. During the period under consideration, the number of equity transactions also fell from 35,782 in May 2015 to 33,367 last month.
An Equity and Money market report by ABC Capital Limited shows that the Nairobi bourse opened this week with a with a total of 20 million shares valued at Sh461 million down from Sh477 million on a volume of 21 million shares posted last Friday. The NSE 20 Share Index was down 33.07per cent to stand at 4467.36 points. All Share Index (NASI) was down 0.16 points to stand at 153.02. “This depreciation in the index is driven by the global effect of a strong US dollar on emerging markets. Investors are therefore taking a global view and reducing their appetite in markets such as China, Greece, Nigeria or Nairobi to the US where dollar assets are more attractive, “said Odundo.
In the local market, though a weaker Shilling is bound to make stocks at the NSE much cheaper to foreign investors, the lack of clear direction on where the local currency is headed is causing some discomfort. Further, foreign investors are bound to make losses when converting their holdings back to US dollars.
Local investors are also fleeing the bourse and seeking for more attractive and safer havens. “With the Central Bank of Kenya increasing the Central Bank Rate, retail investors are moving away from equities to fixed deposit instruments where returns are higher compared to a more expensive NSE,” said Odundo.
Retailers, who do not take a long term view of the market, usually leave when there is a slight volatility and only come back when returns improve.