Stocks dip after foreign investors fail to spur trade

By James Anyanzwa

The Nairobi Stock Exchange (NSE) suffered in the last three months, with foreign investors failing to provide impetus for the market’s rebound.

Fund managers also warn that the bourse will remain subdued for the rest of the year as investors shift attention to corporate bonds.

AIG Investments has cautioned that corporate earnings in the second half of the year might not improve significantly from the first half.

But the investment advisory firm expects corporate earnings to improve next year and reignite interest for stocks, whose valuations are at a historic five-year low.

"Yes it is true we have heard that foreign investors are creeping in, but we have not seen significant contributions in terms of market recovery," said Mr Peter Wachira, the company’s vice-president and senior investment manager.

According to the company’s quarterly report, the stock market slackened in the third quarter of this year diluting the gains recorded in the second quarter.

The key NSE 20-Share Index dropped by 8.5 per cent, while the AIG 27 Share Index and NSE All-Share fell by 3.4 per cent and 5.3 per cent respectively. The volume of shares traded during the period declined to 825.9 million from 983.75 million, while the value of shares traded dropped to Sh9.8 billion from Sh14.3 billion in a corresponding period last year.

Despite reduced activity foreign participation in the local equities market increased and constituted between 60 per cent and 78 per cent of the turnover in July and August.

Fund managers

Foreign participation in the equity market, however, declined to 53 per cent in September, a trend fund managers explained that it would have possibly been due to foreigner’s interest directed to the fixed income market.

During the period under review, the primary bond market was active with the Government inviting tenders for Treasury bonds worth Sh33 billion and attracting bids valued at Sh38 billion. The secondary market was equally vibrant with Sh25 billion worth of bonds changing hands compared to Sh22 billion the previous quarter.

The corporate bond issues attracted investor interest with two companies coming to the market; CFC-Stanbic successfully raised Sh2.5 billion while Shelter Afrique raised Sh1 billion.

Towards the end of the quarter, the KenGen public infrastructure bond sought to raise Sh15 billion with a green-shoe option to tap up to Sh25 billion from the debt market.

Financial results

Last month, the Capital Markets Authority (CMA) also raised concerns against heavy reliance on institutional investors, which it said it could expose the market to external shocks. Ms Stella Kilonzo, the authority’s chief executive, said retail investors were critical in sustaining growth of the market.

"As you know retail investors are going to be and are the cornerstone of our capital markets. We can not rely on the whims of institutional investors," said Kilonzo.

CMA acknowledged relying on institutional and high net worth investors could be catastrophic, especially when they exit the market in droves.

During the third quarter about two thirds of the companies listed on the NSE released financial results with the banking sector’s first half results reflecting a tough economic environment.

Total operating income for the listed banks increased by 12 per cent over the period compared to 51 per cent in the first half of 2008. Profit after tax grew by a modest.

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