Brokerage firms to gain as bond turnover up 17pc

Money Markets

An investment broker at the Nairobi bourse. Bond turnover at the NSE went up by 17 per cent last month. PHOTO | FILE 

By CHARLES MWANIKI, cmwaniki@ke.nationmedia.com

In Summary

• Stockbrokers stand to gain in terms of increased commissions from the higher bond turnover, especially Dyer& Blair and Kestrel capital who together accounted for 48.5 per cent of the cumulative bond turnover in the first 10 months of the year.

Bond turnover at the Nairobi Securities Exchange (NSE) went up by 17 per cent in November compared to the previous month, pushing the total amount traded so far in 2014 to above 2013’s full year turnover, signalling increased brokerage fees for market players.

According to data compiled by Nairobi-based brokerage house Kestrel Capital, turnover for November stood at Sh49.7 billion, compared to Sh42.6 billion in October.

In October, secondary market bond turnover on the bourse was low because investors shifted focus to the primary market where the government offered a 12-year infrastructure bond, which was oversubscribed by 158 per cent due to an attractive yield of 11.26 per cent and absence of withholding tax.

With the infrastructure bond in the secondary market, some of the positive investor sentiment was carried over and it was actively traded in November, contributing to the increased turnover during the month.

“Investors have actively traded bonds in the intermediate tenor as well as the 12-year infrastructure bond which has been a popular choice since it started trading in the secondary market,” said Genghis Capital in a fixed-income market note.

The total bond turnover to end of November now stands at Sh462 billion, compared to Sh452.46 billion for the full year 2013.

Turnover for the first seven months of this year was lower than in a similar period in 2013 but a rally in trading over the second half of the year has reversed this.

The average monthly bond turnover this year stands at Sh42.08 billion, compared to an average of Sh37.7 billion in 2013.

It is still however some distance short of the record Sh565.67 billion turnover recorded in 2012, and looks unlikely to reach this total by the end of the year.

Stockbrokers stand to gain in terms of increased commissions from the higher bond turnover, especially Dyer& Blair and Kestrel capital who together accounted for 48.5 per cent of the cumulative bond turnover in the first 10 months of the year.

READ: Kestrel Capital tops stockbrokers' earnings chart

There has been an increase in the number of corporate bond issues in the second half of the year, especially from the financial sector as banks looked to boost their capital levels ahead of new regulations on capital ratios kicking in next year and insurance firms seek capital for expansion.

“A lot of corporate bonds have come through this year, accelerating in the third quarter,” said ABC Capital corporate finance manager Johnson Nderi.

The inflows going to the secondary bond market have been helped upwards by the high liquidity in the money market, which has seen the Central Bank of Kenya actively participate in the market over the month mopping up through repurchasing agreements (repos) and term auction deposits (TADs).

With other external developments such as capital gains tax coming in next January and uncertainty in the equities, market analysts anticipate resurgence of the fixed-income market in the mid-term.