Securities Exchange reacts to coronavirus ‘pull effect’

Tuesday, March 3rd, 2020 00:00 | By

John Otini

Selling of stocks at the Nairobi Securities Exchange by foreigners is expected to extend into this week with new investors adopting a cautious  approach while international investors opt for “safer options” such as government bills and gold.

Post dividend stocks such as East African Breweries Limited will be the most affected as investors cut losses on fears that the full impact of coronavirus is yet to materialise.

“We believe this selling pressure will sustain into the week and hence urge investors to take a wait-and-see approach in anticipation of lower and much more attractive entry points in subsequent weeks,” Genghis said in a note to investors. Last week, net selling was on Safaricom, Equity and KCB Group.

The NSE fell 6.5 per cent in less than a week with analysts attributing the sell-off to a flight to safety where investors pile their money into government bonds, gold and US dollar during times of uncertainty.

“Global markets this week were infected virulently by the Coronavirus. The negative spillover has hit Africa now and specifically the ‘’pull’’ effect of the China Africa engagement is now in reverse,” said analyst Aly Khan Satchu.

Excluding Safaricom, the NSE was already back at 2002 levels and therefore there is a counter-intuitive argument that the coming takeout might not be as brutal, “but I for one think that is deluded”, he said.

Heavy selling

“The market should be warming up to earning reports between now and May, but instead we are seeing heavy selling,” said Michael Mwakio, a trader at Suntra Investment Bank.

Companies are more exposed to the epidemic because China is major player in the global supply chain with many raw materials coming from the Asian giant.

This trend has seen the drop in prices of stocks across the globe with the Dow Jones in Wall Street dropping 4.4 per cent in a single day closing, The Nasdaq Composite by 4.6 percent and S&P 500 by 4.4 per cent.

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