Sterling top market share gainer in 2016 NSE bonds trading

Money Markets

Stock brokers at the Nairobi Securities Exchange. PHOTO | FILE 

By CHARLES MWANIKI, cmwaniki@ke.nationmedia.com

In Summary

• Sterling Capital ended the year behind sector leader Kestrel Capital, which had 28.4 per cent of bonds traded on the secondary market.
• The gain by Sterling saw it leapfrog Faida Investment Bank, SBG Securities, Standard Investment Bank and Dyer & Blair.
• The market is this year expected to mirror 2016, where bonds attract more investor interest than equities.

Sterling Capital made the largest gain in bond trading at the NSE last year, raising its market share to 15.3 per cent from 6.5 per cent of 2015.

The investment bank ended the year behind sector leader Kestrel Capital, which had 28.4 per cent of bonds traded on the secondary market.

The gain by Sterling saw it leapfrog Faida Investment Bank (12.9 per cent), SBG Securities (9.7 per cent), Standard Investment Bank (9.1 per cent) and Dyer & Blair (4.02 per cent), all four having been ahead in 2015.

Dyer’s market share fell sharply year-on-year, from 12.8 per cent in 2015 (which was then second in the market) as the effect of losing key trading talent to rival Faida came to bear.

Kingdom Securities and CBA capital also ended 2016 with a larger market shares than the former long-time market leader, at 4.6 and 4.4 per cent respectively.

“The bonds market is relationship-based and depends a lot on quality of service. Last year, we improved the quality and speed of our trading services by hiring more hands for bonds section and installing new IT system,” Sterling Capital executive director John Kirimi told the Business Daily.

He, however, declined to disclose the number of new personnel the firm hired for its bonds unit.

The bonds segment, just like the equities market, is dominated by a handful of intermediaries, with the top five accounting for 75.4 per cent of total traded turnover of Sh867 billion — equivalent to Sh433.5 billion changing hands.

The two main segments of the market were divergent last year in that while the bonds market saw a 42.1 per cent rise in traded turnover, the equities side traded turnover fell by 29.7 per cent to Sh294.36 billion — Sh147.18 billion in actual cash.

The flight from equities was due to falling stock valuations, where the NSE 20 share index was down by 21 per cent for the year and market capitalisation shrunk by Sh120 billion.

“Many local investors have turned away from the stock market in search of the safety of Treasury bonds.  The turmoil in the banking industry with bank failures and interest rate controls have contributed to the generally cautious stance towards equities,” said Kestrel Capital chief executive officer Andre DeSimone.

READ: Kestrel, Rencap top NSE stockbrokers’ 2016 market share

Although bonds traded higher last year, the commissions the brokers earn from this segment are unlikely to be enough to counterbalance the negative hit on profits from equity earnings.

The brokers take a smaller commission of 0.035 per cent per bond trade, while in equities they take a maximum 1.5 per cent. The market is this year expected to mirror 2016, where bonds attract more investor interest than equities.

Bond turnover this January stands at Sh27 billion, compared to Sh21.6 billion in the corresponding month of last year and is also up on December 2016 when it came in at Sh24 billion.

Equity turnover on the other hand is down year-on-year, standing at Sh10.7 billion by Thursday, compared to Sh13 billion in January 2016.

“We expect bond activity to continue doing better than equities this year, especially with government borrowing continually going up,” said Mr Kirimi.