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Nairobi bourse’s top 20 stocks sink to 4-year low as foreigners retreat

BUSINESS
By Patrick Alushula | Jun 28th 2016 | 4 min read
By Patrick Alushula | June 28th 2016
BUSINESS
The Nairobi Securities Exchange trading floor. Investors on the NSE lost Sh54 billion in the past two trading sessions as performance slid to four-year low. (PHOTO: FILE/ STANDARD)

Investors on the Nairobi Securities Exchange (NSE) lost Sh54 billion in the past two trading sessions as performance slid to four-year low.

The NSE 20 Index that tracks the performance of top 20 counters slid past Friday’s four-year low to close yesterday’s trading at 3662.15 points.

Yesterday, for the second straight session, all three indices were in the red. NSE all share index (NASI) went down 1.45 points while top 25 stocks shed 43.87 points.

On reduced trading on large caps, equity turnover slumped 43.9 per cent. With this fall, investors lost Sh54 billion on paper in two trading sessions.

The bear run started on Friday, when the average share prices of top 20 stocks at the NSE touched a four year low as most foreign investors withdrew their money. According to the market performance report from the Nairobi bourse, NSE 20 index on Friday dropped to 3706.44 points at the close of trading floor.

Brexit

The performance, which was last witnessed on May 2012, saw the index dip by 8.3 per cent when compared to a similar time last year.

The NSE weekly market wrap report prepared by Standard Investment Bank (SIB) analysts showed that for the first time in five weeks, the market recorded net foreign outflows. According to SIB, foreign outflows outdid foreign inflows by Sh33.6 million ($333,000), most of which happened on Friday, the day when Britain voted to exit the European Union. “Co-operative Bank and East African Breweries accounted for 31.2 per cent and 26.1 per cent of net foreign outflows,” noted SIB analysts.

According to Einstein Kihanda, CEO at ICEA-LION Asset Management, a significant part of the activities on the bourse at the close of the week were driven by Britain’s decision. “For many investors, the outcome of the referendum was a surprise. Foreign investors are moving to safer assets like dollar-denominated investments. This explains why the dollar has strengthened and the pound has weakened,” explained Kihanda.

However, senior research Analyst at SIB, Eric Musau said that NSE has generally been weak since the year begun and Friday’s performance could be as a result of multiple factors other than just Brexit. On Friday, the day the poll outcome was released, the British pound shrunk by 11 per cent against the dollar, being a 30-year low of $1.3229. European stocks also felt the heat, losing up to 7 per cent in biggest drop since financial crisis.

With share prices generally being more volatile in emerging markets, Kenya as an example, added to the slow recovery from the 2015 downturn, foreign investor participation on NSE has kept shifting. Despite the net exit of investors’ money, Equity Bank and Safaricom dominated net foreign inflows at 40.5 per cent of total net inflows and Safaricom 30.8 per cent.

According to Musau, Safaricom has been more in the news especially on tendering report and the imminent exit of its chief financial officer John Tombleson. “For Equity, that has been the trend for quite some time. Partly it could be due to low valuation at the moment and also changing of portfolio,” added Faith Waitherero, a research analyst at SIB.

On five straight weeks of continued foreign investor selling, KCB closed the week at a 52 week low of Sh34.50. However, Ms Waitherero said that it cannot be perfectly concluded that the investors who are now actively selling KCB are going for Equity. Equity’s counter closed at a five month low of Sh38.50.

alternatives

“The banking stocks have been on a decline for some time. Apart from National Bank, up 5.5 per cent week on week on local investor trading, all the lenders were in red,” said Ms Waitherero.

By close of trading on Friday, foreign investor participation in the bourse had risen to 80.9 per cent from the previous day’s 74.5 per cent. Yesterday, foreign investors, who dominated trading and accounted for 73% of market activity, turned net buyers. Net inflows were low at $15.314m (Sh1.549 billion). Notably, across all top movers, Equity Bank, Safaricom and KCB, there was heavy supply which was met with little demand. The three counters accounted for 77 per cent of market activity.

According to Mr Kihanda, for as long as the market is dominated by foreign investors it will be vulnerable to shocks. “The dominance of foreign investors is because they are looking for alternatives to make money. The question for any investors is whether or not there will be a return on their investment,” he said.

On June 2, former NSE Chairman Eddy Njoroge wrapped up his last day on the bourse by warning that the current trend where NSE is dominated by foreign investors could expose it to external shocks.

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