NSE investors lose Sh130bn to bear market in one month

Stock market investors lost Sh130 billion in October as the Nairobi bourse took in a beating for the 19th month during which only four of the 66 listed companies recorded a price gain.

Investor wealth, as measured by the market’s valuation of all listed stocks, dropped to Sh1.93 trillion from Sh2.06 trillion at the beginning of October, underlining the extent of value erosion.

Market analysts have attributed the steep fall in stock prices to the flight of investors to the fixed income securities market following a rise in interest rates to highs of 22.4 per cent for a one-year bond.

“Most investors are turning to fixed income securities because even the trading levels have been quite low,” said Mercyline Gatebi, a research analyst at Genghis Capital.

The Nairobi Securities Exchange (NSE) topped the list of the largest gainers, with an 8.2 per cent share price increase, followed by KenGen, Kenya Re and logistics firm Express Kenya.

The four gainers have a retail ownership of 300,831 locals, indicating that the market slump has eroded the wealth of approximately one
million Kenyans. Some 1.3 million Kenyans have invested at the bourse.

This signals the dilemma most households are facing as they consider selling their stock market portfolio to offset any loans they may be carrying even as the steep interest rates increase continues to eat into their consumption.

The plummetting of stock prices is expected to hit the insurance and retirement sectors, which have invested huge portfolios at the bourse, hard.

Pension funds have invested 26 per cent of their total portfolio or Sh197 billion of Sh788 billion in shares, signalling poor returns for retirees this year.

Insurers had 18 per cent of their portfolio at the NSE at end of June this year and are also preparing for losses with the continued bear run at the bourse.

Insurance companies have to capture the unrealised losses from the stock market in their financial statements, effectively eating up their bottom-line.

The slump has seen the Nairobi bourse rank as Africa’s third worst performer with only Rwanda and Zimbabwe trailing it. The Rwandan market is made up of four companies, three of which are Kenyan.

The NSE All Share index, which measures the performance of all listed shares, is at a 19-month low while the select NSE 20 share index is at a 30-month low.

“It is a bear market plain and simple. A classic bear market is a drop of 20 per cent from high to low. We are therefore deep in the bear market,” said market analyst Aly-Khan Satchu, who was non-committal on whether the market has reached its lowest point.

“It is very cheap. However, we also know just when we thought things were cheap they have a habit of getting cheaper.”

Analysts at Stratlink, a financial aisory firm, expect the high interest rates and a dim economic outlook to continue depressing prices at the bourse in the near term.

Savvy investors prefer to buy shares during harsh times in the hope that an upturn will occur, leaving them with huge gains.

Foreign investors, who exited the Kenyan market in droves at the beginning of the year, have slowly returned in the past three months to take aantage of the low prices.

READ: Foreign investors boost banks and insurance NSE stocks in October

In the four months to October 30, foreigners did a positive net business at the bourse having brought in Sh6.5 billion compared to outflows of Sh6.1 billion in the first half of the year.

“When interest rates are high share prices going up is like trying to climb a slippery slope — even for those who have positive performance we have not seen a significant  rise in prices,” said Johnson Nderi, corporate finance and aisory manager at ABC Capital.

Investors have also been lured away from equities by the high interest rates that the government is offering for its risk-free securities.

The indicative 91-day Treasury bill is currently paying a return of 19.5 per cent up from 13.5 per cent at the beginning of September.

KenGen reported a 300 per cent increase in profit two weeks ago but has gained 4.2 per cent. Economic conditions have been harsh, forcing six of the listed companies to issue profit warnings, with most attributing the expected fall in income to forex losses.

The banking sector, which posted a 5.3 per cent growth in profit, produced the biggest losers in absolute values that accounted for Sh215 billion loss for the 11 listed lenders.

Besides, the banks are expected to feel the pinch of high interest rates with a slowdown in borrowing and a pile-up of bad loans. In recent months, investors have also shied away from bank stocks following the collapse of Dubai Bank and Imperial Bank in the last three months.

The taxman has also been accused of causing the market to take a beating with the introduction of the capital gains tax at the beginning of the year.

Parliament expunged the law requiring investors to remit five per cent of capital gains made at the exchange and also dropped a recommendation for the introduction of a transaction-based commission of 0.3 per cent.

Analysts, however, noted the information had not flowed into the market, creating a sense on uncertainty.

“What we were told is that the tax was in place till January,” said Mr Nderi in reference to the scrapped tax.

“It has probably not flowed into the market because it ought to have caused a positive trigger,” said Ms Gatebi, noting investors expected the implementation of the 0.3 per cent commission.

The biggest loser at the market was infrastructural firm Atlas Development which shed more than a third of its value during the month followed by publisher Longhorn, down 23.2 per cent.