Half of listed stocks are now worth less than a tomato
SEE ALSO :KenolKobil now delisted from NSELimuru Tea split shares in 2015, Crown Paints did a two-for-one bonus, while Carbacid split its stock five-to-one in 2013. ARM split five to one in 2012, while Longhorn Publishers did a three-to-two bonus issue in 2014. Kenya Airways which traded at over Sh100 in March 2010 and has swung to a low of Sh4.95 dogged by a streak of monumental losses. In the most recent, KQ shares were split at the ratio of 20 for one to dilute current shareholders to accommodate banks under the banner of KQ Lenders Company 2017 Ltd. Conventional wisdom in stocks trading usually encourages buying when such companies trade at a low price so as to ride the wave and sell when the stock swing back to shake off cyclical dips. But Kenyan firms are not getting as much interest and attention from buyers, probably because the average investor is sitting in a London or New York office and has a whole globe of choices to pick stocks from. In 2018, on average, 75.84 per cent of the total turnover at the bourse was being traded by foreign investors. And that has its risks, according to the Capital Markets Authority (CMA) Soundness Report. At the end of December 2018, there was an outflow of Sh27.8 billion at the NSE, mainly attributed to the prolonged interest rate hikes observed in the US since December 2015 that depressed performance at the bourse. “The Federal Reserve has continued to hike interest rates from lows of 0.5 per cent in 2016 to 2.5 per cent in 2019. This means more foreign investors holding Kenyan stocks are finding it increasingly lucrative to hold US securities, which are generally considered to be less risky,” a research analyst at Sterling Capital explained. This has seen many foreign investors selling their local stakes leading to a surge in net sales – capital flight. Given that foreign investors control a significant chunk of the Kenyan securities market, this has driven stock prices down despite the current positive economic prospects and good business sentiment. Renaldo D’souza a research analyst at Sterling Capital says foreign investors were also scared by the strong shilling, which they believe is overvalued. “The strength of the Shilling has had an adverse impact on the NSE as an attractive investment option for foreigners. A considerable number of foreign investors believe that the Shilling is trading well above its fair value thus making investing in local stocks comparatively expensive,” he said. Investments are also plagued by debt sustainability concerns, with a good number of foreigners concerned about the debt sustainability levels of the country. “If the government defaults on its payments, debt deflation may lead to a currency crisis which will certainly erode the value of the shilling, especially in relation to major world currencies. This will equally erode all the capital gains made by investors since the exchange rate will eat into all the realised gains,” a Sterling Capital researcher said. CMA, however, notes that it is targeting initiatives aimed at increasing local investor participation at the bourse through strategic investor education initiatives. It is also luring Kenyans in the diaspora who are sending back an average of Sh247 billion a year to counter the increased outflow of foreign capital. In practice, however, the capital markets regulator seems to be caught up in new fancy products such as the Derivatives Market, Assets Backed Securities, Gold Exchange Traded Funds and even Short selling where you are able to sell shares of a company which you do not directly own. This seems to attract sophisticated investors rather than the ordinary man on the street. Even so, Deepak Dave says sophisticated local investors are avoiding the bourse because of huge State borrowing from the private sector which offers better returns. “Mobilising capital becomes more difficult when investments in the market cannot compete with lucrative Government paper returns, some of which are tax-free. Where we have the public sector crowding out the private sector for growth, dividend yield or safety, we can hardly expect stocks to be seen as attractive,” he said. Deepak observes that bringing back small investors will not be easy, especially given that the Chama craze has receded, and leveraged stock loans are a dangerous route to go. Disposable income is also low over the last 10 years as inflation and a slowing economy mean wage growth has flattened in real terms. “Where will Wanjiku find the money, the mechanism or the methods to go play stocks? That said, its time for NSE and CMA to foster the growth of lower risk, more diversified investments that genuinely can compete for growth and earn returns,” reckons Deepak. He said brokers making their fees and commissions more palatable would be a huge step forward, as this would lower management fees. “And this does not include ridiculous proposals such as making gambling-style products a new entrant at NSE,” he said. Analysts say the regulator has been barking on the wrong tree. And recently, in a show of desperation, it even hinted at including gambling-style products to compete with the likes of SportsPesa, Betin and Betway which have managed to attract droves of youth into gambling. The other option has been crypto-currency and online currency trade, which have created an easy mobile based interphase to buy and sell bitcoins, euros and dollars over a mobile phone with a fair share of youths playing the game. “With all the fintech and digital banking mania, why is the stock trading not on e-platforms available to the common man? Why hasn’t a single bank provided a one-stop link between trading, custodial and bank accounts to be seamless?” Mr Deepak posed. Kimani says he gets information from his personal stockbroker, financial advisor, the NSE handbook 2018 and a Facebook page called ‘Young Stock Brokers of Kenya’ underscoring a missed opportunity to capture new markets. However, besides demand and supply at the Kenyan counters, the low prices are being driven by poor performance in the companies themselves. Kenya’s economy is expected to grow by 5.8 per cent, according to the World Bank and six per cent based on African Development Bank statistics, which are not reflecting on the performance at the bourse. “This positive projection is supported by a stable macro-economic outlook, low oil prices, recovery of the tourism sector and strong remittance inflows into the country,” said D’souza. “However, despite positive growth projections in the year 2019, all the major indices in the NSE have continued to shed weight as stocks lose value.” During 2018, the equities market was on a downward trend with the All-Share Index NASI down 18 per cent, the NSE 25 was down 17.1 per cent, while the benchmark NSE 20 dropped by 23 per cent. “We observe a decline in the financial performance of many companies listed on the NSE such as the cement and manufacturing firms. Several companies issued profit warnings and this has reduced the attractiveness of the bourse,” explained D’souza. In 2018, NBK Williamson Tea, Kapchuoria Tea, Kenya-Re, Unga Group, Crown Paints, UAP, Britam, Sameer Africa, Kenya Power, Bamburi Cement, Mumias Sugar and Sanlam all issued profit warnings. National Bank posted a 98 per cent decline in net profits from Sh410 million in 2017 to Sh7 million last year following 65 per cent defaults on their loan book with Gross NPLs standing at Sh31 billion.
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