| |
Return of the Bull Market |
| |
|
|
| |
|
| |
Has the Nairobi Stock Exchange finally got its groove back?
Almost two years after the listing of the Safaricom shares, the market had remained damp under the deluge of the mobile phone firm’s 40 billion shares.
But since the beginning of the year, there have been sparks of confidence as foreign investors streamed back, lifting the spirits of a skittish market to cross the Sh1 trillion in market capitalisation on Tuesday last week.
This is a milestone that momentarily sent players into a frenzy and sighs that – finally – the bull market is back. Market capitalisation is the total value of the market based on share price multiplied by the number of shares outstanding. |
|
| |
|
| |
A 25 per cent increase on the year’s opening value, the Sh1 trillion mark was first and last touched at the market following the listing of Safaricom in June 2008.
Ever since the blip, the market has struggled to keep pace with dismal results, as counters shed value and some stockbrokers bit the dust, sending investors scampering for the exit.
A conspiracy of factors has over the past two years depressed the market performance, thinning the NSE 20-share index to a near five-year low.
However, since the beginning of the year, the indications have all been buoyant.
“This improvement can be attributed to robust earnings posted by a majority of the listed companies, an increase in business confidence and, more so, a return of local investors to the market, both institutional and retail,” says Mr Peter Mwangi, the NSE chief executive. |
|
| |
|
| |
The first quarter of 2010, which ended on March 31, witnessed a remarkable resurgence in the local equity market. According to statistics from the bourse, the NSE 20-Share index grew 24.89 per cent to 4,072.93 points as at the end of March from 3,261.17 at the beginning of January.
The NSE All Share Index (NASI) too went up 17.44 per cent to 84.43 points at the end of March, compared to 71.89 points.
Analysts say this is not a fluke. According to Mr Einstein Kihanda, the business development manager at Sanlam Investment, the market has the fundamentals to sustain the bull-run, or a rise in stock prices.
“There are elements that currently show that the NSE would still maintain the rally,” he says.
“We are mainly an agricultural economy and issues like weather improvement, expected lowering of lending rates by banks might well turn positive for the market.” |
|
| |
|
| |
mproved earnings by listed firms in the first quarter of the year have given a big boost to stocks. Most of the top 20 firms used in the computation of the NSE 20-share index registered profits despite depressed trading season in 2009. |
|
| |
|
| |
Commercial banks saw their share prices picking up, fuelling a rally in prices that generally improved the standings. Indeed, in the first two months of the year, a number of counters corrected their prices caused by low trading. It is expected that these will soon achieve stability, giving the market a sound foundation to continue trending high.
Already, of the 52 listed firms, 47 counters registered gains in the share prices in the first three months of the year. In 2009, market performance dropped by almost 50 per cent, sending most investors into panic-selling. A number of retail investors opted out, while foreign investors played cautiously. |
|
| |
|
| |
Statistics indicate that the return of investor clusters is gaining momentum although foreign buys still take the lead (see graph above). In the first quarter, local investors participation increased by 29.7 per cent, 49.5 per cent and 66.77 per cent of total market turnover for the months of January, February and March.
In an earlier interview with the Smart Company, Mr Paul Sigsworth, chairman Fund Managers Association, also indicated the renewed interest in equities.
But still the market is under a large influence of some dominant players.
Counters such as Safaricom, Kenya Commercial Bank, Equity Bank and Mumias Sugar Company still control trade volumes, as well as Kenya Airways, Barclays Bank of Kenya and TPS Eastern Africa (Serena). |
|
| |
|
| |
“There is a lot of demand for particular stocks that have a significant effect on the 20-share index whose supply is limited and the demand is foreign driven, with local investors reluctant to sell or liquidate,” says Mr Steve Biko, a market analyst with Hidalgo.
Of interest though is the sustained presence of foreign investors.
“Foreign investor participation is a sign of confidence in the robustness of your trading system in addressing the critical aspects of efficiency, transparency and objective price discovery. Their participation adds to the liquidity and shows the ability of our local stock market to attract foreign capital,” says Mr Mwangi, the NSE chief.
Since June 2009, foreign investor participation has been in a net inflow position, meaning they buy more and sell less. As a result, they have accounted for 72.10 per cent, 50.50 per cent and 33.23 per cent of total market turnover month-on-month. This translates to about Sh2.1 billion in February and Sh3.07 billion in March.
This has created confidence in local retail investors. However, their return has also been fuelled by, among other things, improved regulation. |
|
| |
|
| |
“Some of the steps taken by the Capital Markets Authority have attracted the investors as they now feel that some supervisory roles are indeed taking place. This is wooing them back,” says Mr Francis Mwangi, an Investment analyst with African Alliance.
Among the regulatory measures that the CMA has put in place include the mandatory publication of financial results by market intermediaries. Although the brokers and investment bankers have taken this with a pinch of salt, it has created an air of transparency and boosted confidence.
Previously, retail investors would troop to the NSE at the sale of a company’s shares through an initial public offering (IPO). However, since the listing of Co-operative Bank of Kenya in December 2008, the market has been starved of an IPO.
The depressed performance saw a number of firm’s shelve their listings. With the renewed rally, it will not be surprising to have the offers once again placed on the table.
“IPOs are driven by various factors, both at the primary market level (subscription stage) and secondary market level (trading on the NSE). Companies together with their respective transaction advisers analyse the conditions in the two markets to determine their respective ideal conditions,” says Mr Mwangi of the NSE.But perhaps the most telling of the stock market rebound would be the publications of quarterly results by two investments banks. Apex Africa recorded a profit Sh35 million with Dyer & Blair raking in Sh39 million.
Dyer & Blair had recorded a pre-tax loss of Sh53.3 million in the previous year. It grew its brokerage commission by over 200 per cent from Sh18 million to Sh54 million. Improved performance:
Brokerage commission is charged at rate of between 1.5 per cent and 1.75 per cent depending the volume traded. Earlier in the year, an analysis by CFC Financial Services projected a growth in the market this year based on, among others, improved economic growth.
The analysis further pointed out that the World Cup in South Africa would boost the NSE since listed firms across tourism, media and communication would gain from the windfall. These are expected to further drive the market up and sustain the pressure for improved capitalisation.
“The bottom line,” says the NSE chief, “is that the stock market should be driven by fundamentals such as robust earnings by listed companies and improved economic and sectoral outlooks.” |
|
| |
|
| |
[ Back ] |
|
 |
