Stockbrokers at the Nairobi Securities Exchange. FILE PHOTO | NMG
Summary
- Last year’s demand for the fixed-income instruments was driven by diversification of income by commercial banks and non-bank institutions as well as by foreign investors.
- Some foreigners who were divesting from their equity portfolio on the Nairobi Securities Exchange (NSE) moved cash into the fixed-income market driving up the turnover numbers.
The secondary bond market turnover rose by 29 percent in 2018,
marking it the second highest ever sales for the instruments at the
Nairobi bourse for eight years.
The activity in the
bonds counter hit Sh562 billion, making 2018 the only year apart from
2012 when the Nairobi Securities Exchange (NSE) bond turnover has
exceeded Sh500 billion. In 2012, the turnover stood at Sh566 billion.
Last
year’s demand for the fixed-income instruments was driven by
diversification of income by commercial banks and non-bank institutions
as well as by foreign investors.
Some foreigners who
were divesting from their equity portfolio on the Nairobi Securities
Exchange (NSE) moved cash into the fixed-income market driving up the
turnover numbers.
“The bonds market outpaced 2017
numbers in activity by 29 percent to Sh562 billion from Sh435 billion
traded in year 2017,” said the NSE in an update on the 2018 market
performance.
The amount is for the sales side but the
buying side has a similar amount. Brokerages earn commissions from both
the sales and buying sides of a transaction.
“The sale
by foreigners of the equities saw a good number of them turn to the
fixed-income side. There was a lot of liquidity on the side of bonds,”
said a fixed-income expert working in a Nairobi-based brokerage house.
The equities market lost Sh419 billion in paper wealth last year as
prices of most listed firms fell.
The expert explained
that the suffering on the equities market was not altogether bad for the
stock market because it shifted a bit of the wealth to the fixed-income
market, pushing up the turnover.
Besides the shift, there was also the impact of the restrictions
on the movement in interest rates that saw some commercial banks as
well as non-bank institutions rush to the secondary market to accumulate
more bonds.
“Financial institutions were seeking to
get a good piece of the action on government securities in the secondary
market in the second half of the year once they realised that the rate
cap was not going to be reviewed,” said the expert.
Last
year, MPs retained the restriction on commercial banks’ lending rate
even as they removed the one on the deposit rate. Lending rates have
been restricted to a maximum of four percentage points above the Central
Bank Rate since September 2016 and attempts to change this has met
resistance from legislators.
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