Stock market investors lose Sh55bn in 6 months of share price erosion

Money Markets

A Nairobi Securities Exchange employee monitors trading at the bourse. PHOTO | FILE 

By CHARLES MWANIKI, cmwaniki@ke.nationmedia.com

In Summary

• The owners of Kenya’s biggest bank by capitalisation KCB suffered the largest market cap erosion that reduced investor wealth by Sh30.3 billion to Sh102 billion in tandem with a plummeting of the share price by Sh10 to Sh33.75.
• Market performance has also been affected by tight liquidity in the money markets that has kept fixed income interest rates attractive for many investors.
• Only nine companies — I&M Bank, Longhorn, Kenol Kobil, Britam, BAT, Sasini, Safaricom, EABL and Unga — recorded share price gains for the half year, illustrating how widespread the market difficulties were.

Stock market investors lost Sh55 billion of their wealth in the first six months of the year as the ripple effects of a banking sector crisis hit equity prices and foreign investors reduced their exposure in frontier markets.

Better performing investment avenues such as fixed income securities and real estate also pulled investors away from the equities market, hurting stock prices that were already counting the cost of poor 2015 performance, according to newly released market data.

A steady decline of stock prices over the six months has left market capitalisation at a low of Sh1.994 trillion from Sh2.049 trillion in January, while the NSE 20 Share Index closed yesterday’s trading at a four-year low, having shed 10 per cent or 400 points to stand at 3640 points from 4040 in January.

The development has left in its wake the paradox of a poorly performing stock market in a growing economy. The Kenya National Bureau of Statistics (KNBS) data shows that the economy grew at the rate of 5.9 per cent in the first quarter — the best performance in five years, compared to five per cent in the same period last year.

The owners of Kenya’s biggest bank by capitalisation KCB suffered the largest market cap erosion that reduced investor wealth by Sh30.3 billion to Sh102 billion in tandem with a plummeting of the share price by Sh10 to Sh33.75.

Barclays Bank also suffered a similar battering, losing Sh22 billion in market value to stand at Sh51 billion after its share price plummeted to an all-time low of Sh9.60 a share. Cooperative Bank came in third, having lost Sh9 billion of its market value to close the half year at Sh78.9 billion.

Analysts said the stock market performance largely reflected the impairment of local investor sentiments in the banking sector in the wake of recent catastrophic events that saw three lenders shut down in nine months.

READ: Troubled NSE firms hit by massive share price erosion

“The decline can be largely traced to the banking sector, especially considering the fact that other large stocks such as Safaricom and EABL made some significant gains during the period,” said Standard Investment Bank head of research Francis Mwangi.

The banking wealth erosion was particularly significant at Sh76 billion in six months, far outpacing others sectors such as commercial and services where investors lost a total of Sh16 billion and energy at Sh15.3 billion.

Investors in telecoms stocks, where Safaricom is the only listed firm, and their counterparts in manufacturing, where cigarette make BAT and beer maker EABL are the main players, however fared better having posted Sh58 billion and Sh7.2 billion gains respectively.

Kenyan banks reported mixed results for the period taking into account tighter scrutiny from the central bank — whose greatest impact has been the increase in provisions for bad loans and ultimate decline in profitability.

Investor confidence in banking stocks plummeted in the period, slowing down activity in the sector that was the biggest driver of the NSE’s three-year bull run beginning 2012.

Tight liquidity

Market performance has also been affected by tight liquidity in the money markets that has kept fixed income interest rates attractive for many investors.

“The first quarter of 2016 was rocked by global financial market shocks that had a ripple effect on trading activities in Kenya. Interest rates in the bond market have remained high, offering little incentive for investors to revert to the equities market,” said Dyer & Blair Investment Bank’s head of research, Linet Muriungi.

Last year’s lower earnings in the insurance sector also reduced enthusiasm for the stocks, resulting in poor performance in the equities market.

The uncertainty market has seen local institutional buyers significantly cut their market participation this year, increasing foreign investor share of activity to about two thirds of the traded turnover.

Foreign investors held a net buy position of Sh1.8 billion in the six-month period, according to official data released yesterday. This was in stark contrast with the first half of 2015 when foreigners had net outflows of Sh5.3 billion with a 49 per cent participation in the market in the wake of the government’s decision to introduce a capital gains tax.

“Clearly the current position of the market cannot be blamed on foreign investors. Their 66 per cent share of trading shows it is local institutions that have not been trading actively,” Mr Mwangi said, adding that the profit warnings by a record 18 firms in the past year may not have had a big bearing on actual performance given that large firms that control 90 per cent of the market cap were not affected.

The 20 biggest public listed firms by market capitalisation also increased their dividend payout by 9.9 per cent for the 2015 trading period, keeping investors aboard and protecting their share prices. Safaricom, which paid out Sh30.4 billion to shareholders, led the pack ahead of big dividend payers such as BAT and EABL.

READ: Why the stock market is the place to for bargain hunters

Smaller firms that have experienced corporate governance and operational challenges dominated the list of the biggest decliners for the half year.
Uchumi Supermarkets, which is fighting for survival, was the biggest casualty, having lost 74 per cent of its value and now has a market cap of just Sh1 billion from Sh4 billion in January.

Heavy declines also occurred on the counters of Atlas Development, which liquidated its Kenyan subsidiaries at the end of 2015, National Bank of Kenya, Home Afrika, East African Cables, Olympia Capital, TransCentury and Pan Africa Insurance.

Williamson and Kapchorua Tea, which issued bonus shares this year, also recorded significant share price erosion of 46 per cent and 55 per cent respectively after accounting for the dilution.

Only nine companies — I&M Bank, Longhorn, Kenol Kobil, Britam, BAT, Sasini, Safaricom, EABL and Unga — recorded share price gains for the half year, illustrating how widespread the market difficulties were.

A number of these firms trade low volumes and are thought to benefit from tight liquidity to protect their share prices from erosion, which is mostly associated with oversupply stocks against low demand.

Analysts anticipate that the second half of the year could turn out the same, especially with the increase in political risks associated with next year’s elections.

cmwaniki@ke.nationmedia.com