Investors lose S00bn in NSE’s ten-month bear run

Investors in firms listed on the Nairobi Securities Exchange (NSE) have lost S00 billion since the beginning of the year following a slump that has seen the main index drop to a three-year low.

NSE data shows only 13 of the 66 listed companies have gained in value underlining the extent of the bear run. The fall in stock prices has been attributed to introduction of the capital gains tax earlier in the year and the depreciation of the shilling.

Monetary authorities have in turn raised interest rates to curb the depreciation, which has in turn pulled investors away from stocks to the fixed-income market.

The NSE 20 share index has dropped to 4017.3 points from 5117.4 at the beginning of the year, a 21.5 per cent decline. The size of investors’ wealth, as indicated by market capitalisation, has dropped to Sh2 trillion down from Sh2.3 trillion in January.

“The Nairobi Securities Exchange has so far recorded a bearish run, with stock prices dropping at an average of 40 per cent. This we mostly attribute to the introduction of the capital gains tax early this year that was characterised by administrative challenges,” said Joshua Otiende, a research analyst at Nairobi-based ABC Capital.

The three big losers during the ten-month period are from the real estate sector. They include construction firm Home Afrika down nearly 60 per cent, cement maker Athi River Mining which has shed 54 per cent of its share price and Britam that is down 46 per cent.

The banking sector, however, constituted the largest losers in absolute values with the 11 listed lenders losing nearly Sh170 billion in capitalisation. The banks are expected to feel the pinch of high interest rates with a slowdown in borrowing and piling up of bad loans.

Agriculture and telecommunication companies were the only sectors to weather the bear run with Kakuzi Tea being the largest gainer, up 78 per cent.

Agricultural firms are set to be net beneficiaries of the weak shilling as they are exporters unlike other productive sectors that rely on imported inputs.

Six listed companies have issued profit warnings with most attributing the expected fall in income to forex losses.

Safaricom, the only company in the telecommunication segment following the exit of Access Kenya, is trading at Sh14.80 up from 14.05 at the beginning of the year.

Investors have also been lured away from equities by the high interest rates offered by risk-free government securities. The indicative 91-day Treasury bill is currently paying a return of 21.3 per cent.

READ: Three-month Treasury bill hits 20pc

Commercial banks have also been pushed to offer competitive rates to commercial depositors resulting to portfolio realignment by fund managers and investment firms.

“This (high interest rates)ombined with the relatively low risk levels, compared to equities, has attracted a lot of investors to government debt, negatively affecting the performance of the NSE. We have seen fund managers and pension funds realign their portfolios to this effect, with expectation being that this increase in rates will hold at least in the short run,” said Mr Otiende.

Market analysts are, however, hopeful that the market will rebound following stabilisation of the shilling and the scrapping of capital gains tax, which should give investors confidence.

“This could be further supported by the fact that regional peers such as Nigeria and South Africa are confronting a comparatively more aerse macro-economic climate than Kenya,” said research firm Stratlink Africa.

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

Brokers are hoping that the removal of the tax will pull back investors to the bourse.

Analysts at ABC Capital argue that the bear run has created an opportunity for investors to enter the market and reap capital gains going into next year when the market is expected to rebound.