Business Daily (Nairobi)
Moses Michira and David Mugwe
27 December 2011
The stock market recorded the slowest day of trading in the year on Friday, as the Christmas mood wieghed down on the Nairobi Securities Exchange. Investors stayed away from the market, with only Sh28.3 million worth of stocks changing hands on the day.
The turnover was less than a fifth of Thursday’s Sh157 million as activity continued to weaken since earlier in the week.
Brokerage firms said the trade was dominated by Safaricom, Equity and Barclays, jointly accounting for over half of the gross trades.
“The bourse posted the slowest activity in the year with turnover declining 82 per cent ahead of the holidays,” said analysts at the Standard Investment Bank. “Activity was subdued across the market as investors wound down their trading positions.”
The thin trades across all counters helped the NSE 20 index, which tracks the performance of the blue chip firms at the bourse, to gain six points in the session to maintain a winning streak that lasted for most of the week to close at 3,145.72 points.
Analysts at the Sterling Investment Bank expect little activity in the last week of the year but said the direction of the stock market remained largely uncertain in the long-term due to the depressed economic environment.
“Expectations for the coming week remain modest with no clear sentiments but most investors are expected to underweight their target equity allocation,” said the investment bank in a note to investors on Friday.
They anticipate that the direction of the stock market would over the longer term be influenced by the ongoing debt crisis in the eurozone and further by domestic politics.
In spite of a sharp drop in foreign capital inflows, foreign investors still accounted for more than 72 per cent of the overall trade in the week, suggesting that the contribution of the local investors took a significant dip in run up to Christmas.
The NSE is expected to close this year at a two-year low, with the market so far having lost a third of its value over the past 12 months.
Over the past three weeks, the market has recovered slightly with the benchmark index gaining 42.68 points after dropping to 3,070 points on December 12, levels last seen in 2009.
Brokers, fund managers and investors do not expect significant gains over the remaining trading days.
“We see the index moving sideways and we don’t expect it to significantly exceed the 3,200 mark,” said NIC Securities in a research note released last week.
Analysts are pointing to the Central Bank of Kenya’s (CBK) monetary stance and how the country will manage next year’s elections to affect the performance of the market going forward.
Einstein Kihanda, chief investment officer, ICEA Asset Management, said that a number of factors including the political climate and how the banking regulator continues to handle inflation locally and how the eurozone debt crisis is handled internationally would continue to affect the market in the new year.
Trending downwards
“I expect it to be fairly stagnant next year,” he said adding next year’s General Election would be a significant factor and that uncertainty affect the Nairobi bourse until there is a clear indication of who will be the next president.
Mr Kihanda said that in through 2002, the market was trending downwards and when the country was sure that Mwai Kibaki was taking over from Daniel Arap Moi, investors started taking equity positions.
“I still expect inflation to be a concern although it is expected to ease because of a drop in food prices but I do not expect a drastic decline in interest rates,” he said adding that increased activity in fixed income securities would continue, especially with institutional investors.
The index last dropped below 3,100 points in the third quarter of 2009 when East Africa’s largest equity market was feeling the effects of the global financial crisis and the January 2008 post-election violence.
At the start of the year, the NSE benchmark index was at 4,432.60 points meaning that as of the close of trading on Friday, share prices of the 20 stocks that constitute the index had shed about 29 per cent over the past 51 weeks.
The value of investor’s wealth as measured by market capitalisation had dropped by Sh302.84 billion ($4.085 billion) while the price-to-earnings ratio of the Nairobi bourse had dropped by more than half from 17.8 times at the beginning of the year to 8.31 times as at the close of trading last week.
“It depends on economic policy more than the political process,” said Robert Munuku, the head of research at Drummond Investment Bank.
He said that in the first three months of the year investors may start taking positions in companies that they feel might give high dividends as this will be the period when many listed firms will be announcing their full year results.
The drop in the prices of shares at the Nairobi bourse this year has been attributed the steep increase in the prices of basic goods and services throughout the year and a depreciating shilling between January and October.The overall inflation rate, which measures changes in the cost of basic goods and services, stood at 19.72 per cent last month compared to 3.84 per cent in November last year.
Over a nine month period the shilling had depreciated against the dollar by 24 per cent from an average of Sh80.80 on the first day of trading in January to an average of Sh105.96 in the middle of October according to CBK data.
Foreign equity investors have responded to the weak shilling and eurozone debt crisis by selling assets at the Nairobi bourse so as to preserve value while local and institutional investors have taken refuge in fixed income securities, which have been offering investors higher and less risky returns.
In the past three months, the banking regulator has increased interest rates to stabilise the currency and tame the rising inflation, a move that has seen the 91,182 and 364 Treasury bills hit record highs.
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