NSE suffers Sh5b daily loss as growth concerns surge
Election fever has started gripping the country with investors and households fortifying their positions ahead of the August 9 polls, which ends Jubilee’s two terms in office.
Investment analysts who spoke to the Business Hub said dwindling fortunes at the Nairobi Securities Exchange (NSE) signal a bearish sentiment that started in January.
The bearish sentiment, according to Churchil Ogutu, an economist at IC Group, comes as investors exit the market and households grapple with rising inflation. It has put a dent into stock market valuations and tightened financial conditions for businesses and consumers.
Kevin Ngige, an equities trading analyst at Genghis Capital said the losses are being made by local and foreign investors at the bourse, where shares have been shading off some $46 million (Sh5 billion) daily since the start of the year.
“For enterprises, the market capitalisation in the NSE has fallen from $22 billion (Sh2.7 trillion) at the start of the year to around $15.5 billion (Sh1.6 trillion) as of early last week, meaning investors have lost $46 million (Sh5.4 billion) every day since the start of the year,” Ngige said.
Analysts further say that most Kenyan households will cut back on their expenditure and investment due to the high cost of living, which has seen prices of basic commodities increase substantially since last year. The high inflation rates, which surged to 6.47 per cent in April - the highest since September 2021 - and food prices that account for about a third of households expenditure soaring by 12.15 per cent year-on-year, compounded by a two consecutive year drop in earning power will see most households tighten their spending and investment abilities in the run-up to the election.
“The convergence point for the two – enterprises and households, when it comes to investment reasoning, is that they do not thrive in periods of uncertainty (policy and/or otherwise), that comes with regime change,” Ngige said.
Market volatility
In their weekly markets outlook report, analysts at Cytonn Investments said that historically, elections have driven increased market volatility, resulting in households and enterprises adopting a precautionary behaviour to investment, a position they said is unlikely to change with the impending polls.
Cytonn expects a familiar script to play out where people will deposit their money as either savings, time or demand deposits as they seek safer havens for their funds, increasing deposits in the local banks.
Local and foreign investors are also expected to offload their equities investment a short period before the elections. “We expect 2022 to register lower investor sentiments due to a cautious stance by investors as they monitor the election proceedings,” the Cytonn report noted.
However, Ngige said despite all the hype and tension in the run-up to the elections, fundamentally nothing has significantly changed on the macro-economic level except for the current dollar shortage and debt distress.
Except for a decline in the bonds markets in the week ending May 26, and the worrying prospects of the country’s debt stock breaking the Sh9 trillion ceiling the Central Bank of Kenya (CBK) in its weekly bulletin painted a picture of a stable shilling against major international and regional currencies.
Kenya’s Eurobonds
According to CBK, bond turnover in the domestic secondary market decreased by 15 per cent during the week ending May 26, while yields on Kenya’s Eurobonds also declined by an average of 143 basis points.
The banking sector regulator said the shilling was stable against major international and regional currencies, exchanging at Sh116.62 per US dollar on May 26, compared to Sh116.37 on May 19.
