NSE sees more rout despite gains for large firms

Wealth erosion at the Nairobi Securities Exchange has extended into the fourth quarter of the year despite gains by several large stocks since October.

According to data from the bourse, the equities market capitalisation has fallen further to Sh1.466 trillion as of December 11 from Sh1.487 trillion as of the end of September.

Losses in the quarter, so far, are greatly reduced from the third quarter when market capitalisation tumbled from Sh1.666 trillion at the end of June.

The Nairobi All-Share Index has fallen to 93.86 points from 95.22 at the end of September.

However, the NSE-20 and NSE-25 indexes have turned the corner by gaining to 1516.18 points and 2418.52 from 951.35 and 1,508.75 points, respectively, over the same period.

Gains for the NSE-20 and NSE-25 indexes signify price recovery for large-cap stocks since the start of October.

The gains have, however, been a mixed bag for the NSE blue chips with Equity’s share price, for instance, improving to Sh37.45 since the end of September from Sh35.55 previously.

Other large-cap stocks, including Safaricom, EABL, Co-op Bank and Absa, meanwhile, continued with the bearish trend as their respective share prices fell to Sh14.50, Sh112, Sh11.20 and Sh11.35 from Sh14.60, Sh131, Sh11.80 and Sh11.95.

Analysts state the factors defining the 2023 bear run have been largely unchanged, including more attractive fixed-income investments, local currency weakness and elevated interest rates in advanced economies that have anchored foreign portfolio outflows from emerging and frontier economies such as Kenya.

The headwinds have served to offset market fundamentals, including improved earnings for the banking industry to leave behind sharply discounted stocks.

Read: How NSE can recover from loss to drive growth in Africa

“The current discounting on the equities space comes on the back of the appeal created by elevated yields in fixed income. We haven’t seen any significant tailwinds to warrant a reversal in market performance,” said AIB-AXYS Africa research analyst Ronny Chokaa.

Interest rates in advanced economies are expected to remain higher for longer into 2024 incentivising foreigners to stay put in home markets to further limit portfolio flows into emerging and frontier economies.

Benchmark rate

Domestically, last week’s benchmark interest rate increase to 12.5 percent by the Central Bank of Kenya could exert more pressure on Treasury yields that would further enhance the appeal for fixed income over equity investments.

The NSE remains a sharply discounted market and traded last week at a price-to-earnings ratio of 5.3 times against a historical average of 12.1 times.

Read: 42 percent of foreign investors flee NSE in nine months

The market dividend yield meanwhile stands at a mean 9.2 percent from a 4.4 percent historical average.

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