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Covid-19 separates the men from boys of corporate Kenya

By Domnic Omondi | July 21st 2020

MyCredit Limited managing director George Mbira (left) gives a food donation to Esther Kwamboka carrying her 2 and half years old son Sam Ombonya in Kibera. [File, Standard]

The coronavirus pandemic has muted activities at the Nairobi bourse, eroding the value of many erstwhile blue-chip stocks. 

But amid the gloom and doom, the cream of corporate Kenya has emerged.

Safaricom, Equity and KCB counters have distinguished themselves as some of the star performers at the Nairobi Securities Exchange (NSE) during the peak of Covid-19 pandemic.

Between April and last month when investors shunned the stock market, these counters defied the odds and occasionally bleeped green when all others were in the red zone, according to an analysis of the 10 best-performing stocks at the Nairobi bourse.

After the initial shock of the pandemic that saw investors scamper for safety wore off in May, these counters were joined at the peak by Britam, KenGen, Stanbic Holdings and BAT as traders warmed up to them.


Others such as Centum, NCBA, Co-operative Bank and Bank of Kigali could, however, not keep up the pace.

On March 14, a day after Kenya announced its first case of Covid-19, trading at NSE was halted as traders desperately offloaded their shares, with the market capitalisation, or total wealth at the exchange, dropping by a record Sh120 billion.

“The rules allow us to halt trading if the NSE 20-Share Index declines by more than five per cent,” said NSE Chief Executive Geoffrey Odundo.

The NSE 20-Share Index is the benchmark index, which includes 20 blue-chip stocks.

Containment measures

The stock market has since stabilised, but the benchmark index is yet to hit its pre-pandemic levels of 2,600 points.

By the close of business on Friday, the NSE 20-Share Index was at 1,909.36 points, up by 0.15 per cent from 1906.43 points on Thursday.

The storm in the stock market the world over has calmed, with investors snapping up blue-chip stocks at a bargain.

In May, for example, the total value of shares traded was worth Sh14.6 billion.

This was 17 per cent more than the Sh12.5 billion worth of shares moved in the same month last year.

Safaricom’s counter was the most active during this period, moving an average of Sh6 billion as the telecommunications provider continued to enjoy a good run buoyed by increased use of data by Kenyans who were working from home.

It was followed by that of Equity Bank, which registered a turnover of Sh1.9 billion during this period. KCB was third with Sh1.4 billion.

Despite its businesses being disrupted by the containment measures, which saw nightclubs and pubs prohibited from operating, East African Breweries Ltd’s (EABL) counter remained among the top 10 performers, moving an average of shares valued at Sh767.8 million over the period.

Other stocks that have done well during the period include those of Standard Chartered Bank and Absa Kenya, which have consistently featured among the top 10 movers in the period under review.

This even as the stock market, which suffered one of the longest listing droughts, is buffeted by yet another challenge of de-listing.

While traders at NSE want the government to fast-track the privatisation of State corporations to inject more liquidity into the stock market, cash-strapped Kenya Airways is going in the opposite direction.

Trading of its shares at the NSE was stopped after a proposed law to nationalise the national carrier was presented in the National Assembly.

At the same time, investment company Trans Century also said it would be floating the idea of de-listing in a meeting with its shareholders. 

NSE’s Odundo while downplaying the negative effects of increased cases of de-listing, the listing drought and numerous profit warnings that have left investors on the edge, is bullish that the stock market will get back its mojo.

He reckons that the NSE remains a highly lucrative platform for capital raising, citing recent developments such as the listing of Uganda’s Umeme and Bank of Kigali.

“The delisting of companies is an opportunity explored to companies based on their strategic repositioning,” he said of the recent spate of companies walking out of the exchange, mostly troubled ones.

“We also do delisting where the company ceases to serve the best interests of investors,” explained Odundo.

The impressive performance of Safaricom and a few bank stocks is not surprising.

These firms are also some of the most profitable in the country, reflecting their solid financial bases.

But even as the stock market has taken the recovery path, the general economy is yet to shrug off the negative effects of Covid-19.

Various sectors, such as hospitality, aviation, entertainment and education, are still reeling from the adverse effects of the pandemic.

The story is different at the stock market where deep-pocketed investors are grabbing blue-chip stocks, anticipating a kill when normality resumes.

“This bargain hunting is a classic example of how every economic crisis like this ends up making the rich richer and the poor poorer, especially in the West,” said Wohoro Ndoho, the chief executive of Euclid Capital and a former director general public debt management.

Ndoho reckoned this holds for the property market as well. “Imagine what you could get in the market right now if you had a lot of hard cash?”

Scholastica Odhiambo, an economics lecturer at Maseno University, said it is the fear of people dying from the virus that has caused the dismal performance of the economy rather than real economic factors.

“The investors with big money are the ones speculating an economic turnaround,” said Ms Odhiambo.

Like many other analysts, XN Iraki, a business lecturer at the University of Nairobi and a columnist in The Standard, said this decoupling of the stock market and the economy is not unique to Kenya.

Even developed markets like the United States of America, he said, are also experiencing a surge in stock prices.

“In Kenya, there is no disconnect between the stock market and economy; the stock market is anticipating the return to normalcy as the economy opens up,” explained Mr Iraki, giving the example of increased traffic jams.

“The stock prices are factoring the expectations that the economy will turn round and grow despite Covid-19.”

For his part, Churchill Ogutu, a research analyst at Genghis Capital, does not reckon the performance of the stock market can be the pulse of the economy.

“First, the stock market is heavily skewed towards telecommunications and banking sectors, which account for 80 per cent of the market capitalisation,” said Mr Ogutu.

Market capitalisation is the total wealth of the stock market.

However, in the real economy, it is agriculture that takes the lion’s share, while trade and private households are the largest recipients of private sector credit, according to Ogutu.

 “These sectors on the real economy occupy insignificant proportions in the stock market,” he added.

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The performance was mainly driven by growth in interest income, particularly in the small and medium enterprises.