Back-to-back losses hitting the Nairobi Securities Exchange (NSE) are reportedly causing investors to be wary of investing in Kenya’s stock market. The issue is being compounded by record losses of 30% being experienced by KCB Group PLC, Kenya’s largest bank by assets, as well as bank loan defaults and depleting foreign exchange reserves.
Although Kenya’s stock benchmark has been proclaimed by Bloomberg as the poorest-performing index among the countries they track, experts say that the local banking sector continues to profit and is on track to become the top-performing stock on the NSE based on expected earnings growth and larger dividend distributions.
NSE says Kenyan markets are resilient
In the last week of September 2023, while KCB Group’s share prices continued to plummet, stocks from Co-op Bank gained 100 basis points to Ksh11.95, concluding at a market capitalization of Ksh70 billion.
Meanwhile, Equity Bank Group posted an 8% increase in net profit, providing its investors with a 52% return.
Furthermore, the NSE responded to Bloomberg’s article by stating that a holistic view of Kenya’s public capital markets is needed as the NSE All-Share Index does not take into account float adjustments, dividend yields, and comparative peer market reviews.
The NSE added that its cumulative equity market activity during the first half of 2023 showed a 9% increase compared to the same period last year.
The NSE also cited that during the month of September alone, the monthly value of bonds traded at the NSE reached a two-year high, whilst recording a historical single-day high trading of Ksh165 billion worth of fixed-income trades.
Factors affecting the markets
Between 2004 and 2014, the NSE went through a period of innovation and change that brought seemingly endless opportunities for investors to make money. Factors such as an expanding economy, cheap and accessible bank credit, as well as technological advancements, precipitated a bull run that meant companies could get high valuations for their shares when listing. This culminated in January 2007, when the NSE 20 Share Index peaked at 6,161 points.
Nowadays, companies requiring funds instead turn to private equity (PE) capital which takes three to six months compared to an IPO which can take up to 18 months to conclude. As a result, the NSE has been lacking in the regular and quality IPOs it needs to attract a new generation of investors. Further worsening the listing drought are inflexible compliance regulations and the dull performances of recent IPOs. On top of this, the listing drought has coincided with a long, bear market at the NSE which has witnessed the NSE 20 Share Index drop to 1,577 points.
On the bright side, efforts are underway to bring back the NSE’s former glory. The NSE has created the Growth Enterprise Markets Segment (GEMS) and has launched Ibuka, an incubation and acceleration program that seeks to prepare companies for potential listing. New products like REITs and exchange-traded funds and derivatives have also been brought into the market in hopes of drawing new investors.
At the same time, the emergence of online trading platforms could also be a way for new Kenyan investors to trade stocks online and invest in established international stocks to help hedge against losses in local stocks. Features like stop-out protection can protect against stop-outs in the event of a sudden spread widening, which occurs when a bid price falls suddenly while the ask price rises and the middle price remains constant.
Diverse stock derivatives allow new investors to gain exposure to a large selection of stocks without having to own the underlying asset. On reputable trading platforms, investors have access to stocks including Nike, Tesla, Amazon, and PayPal.
Potential for growth
The Capital Markets Authority’s (CMA) attempt to align the NSE with current market needs and trends has driven them to update listing laws and review the Privatization Act to facilitate offloading shares in government firms to the public. These changes, with the help of tax incentives to potential listees, are being executed with the goal of restoring market confidence in the NSE.
Elsewhere in Sub-Saharan Africa, markets such as Mauritius and Ghana have been performing well. GDP growth within these countries bodes well for the whole region, with the World Bank predicting that Sub-Saharan Africa’s GDP will grow by 3.6% in 2023 and 4.0% in 2024. Corporate earnings are also expected to grow as a result of economic growth and rising commodity prices.
Overall, there is potential for growth in Kenya, as well as the whole of the Sub-Saharan region, but it will still depend on factors like economic growth, corporate earnings growth, and increased foreign investments.
