CMA mulls action over NSE control

Wednesday, August 3rd, 2022 02:00 | By
Nairobi Securities Exchange (NSE). PHOTO/Courtesy

Capital Markets Authority (CMA) and Parliament are working to address the market concentration risk posed by the dominance of five companies at the Nairobi Securities Exchange (NSE).

The authority said market concentration for the top five firms for the quarter ended June 2022 averaged 77 per cent of a market of 65 listed companies. “The market concentration risk that the capital markets continue to face remains a key policy discussion both amongst regulators and the Legislature,” according to the latest Capital Markets Soundness report.

Valuable companies

Safaricom, Equity, KCB, East African Breweries and Co-operative Bank are the most valuable companies on the NSE. Most of the time investors only concentrate on these counters leaving many other counters idle. Safaricom’s share of combined investor wealth at the NSE touched a high of 63 per cent last year raising concern over the risk posed by the counter on the entireindex .

The telco claimed at least half of the market wealth from 2020 and has been deepening its share of the NSE wealth since then, a dominance that is making it difficult for investors to gauge the performance of the bourse. 

A minimal fall in the Safaricom share price creates an impression that the market is underperforming despite other counters recording gains.

“To minimise this risk, more strategic initiatives aimed at growing other sectors of the economy are needed to increase the range of sectors represented by listed firms at the bourse,” CMA said.

Banks, telcom and energy sectors have largely dominated the NSE following a listing drought that has plagued the country for nearly 15 years.

The regulator has been working to reduce roadblocks in the listing of new companies making it easy for companies to raise funds alongside compelling the government to sell shares in State-owned enterprises in order to raise funds for debt service.

“The Authority, in the review of its Public Offers and Listing Regulations, sought to provide favourable listing requirements to attract more companies to list,” the quarterly report said.

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