There is no recovery in sight yet for Africa’s worst-performing stock market as investors look to bank earnings this month to assess how hard the coronavirus pandemic hit Kenyan lenders.
Net foreign-investor outflows and reduced dollar earnings led the Nairobi Securities Exchange 20 Share Index to slide for seven consecutive months through July, falling to the lowest in 17 years, according to data compiled by Bloomberg. Kenyan lenders — several of whom restructured debt as the economy slowed — are among the worst-performing stocks including Equity Group Holdings Plc, KCB Group Ltd. and Co-operative Bank of Kenya Ltd.
First-half bank results expected this month, and those of Kenya’s biggest company Safaricom Plc after September, “will determine the direction of the market,” said Sarah Wanga, head of research at AIB-AXYS Africa. “Investors expect earnings to decrease and investors’ reaction will depend on the magnitude.” Investors from outside Kenya increased their trading in the three months through June, ramping up net foreign-portfolio outflows to 10.3 billion shillings ($95.5 million), compared with an inflow of 1.17 million shillings a year ago. The nation’s markets regulator attributed the “drastic change” to “panic trading” following the Covid-19 outbreak.
“If we see foreign investors start to focus on frontier markets, that might be positive for Kenya,” Wanga said.
That doesn’t appear to be the case yet, according to Hasnain Malik, the Dubai-based Global Head of Emerging and Frontier Equity Strategy at Tellimer Markets. The company’s top Africa pick is Egypt, partly because of the International Monetary Fund’s support, attractive carry trade and less likelihood for interstate war that had recently dragged down the Arab nation’s market, according to Malik.
Safaricom, which accounts for more than half of Kenya’s all-share index, has outperformed banks but could lose revenue after it agreed to waive some charges on its mobile money transactions. That’s likely to affect Safaricom’s share price and the index, according to Wanga.
The NSE 30 gauge declined for a fourth day on Tuesday, closing down 0.2% and bringing its drop this year to 32%.
“This situation likely continues until the region conquers the virus,” said Malik.
