The Nairobi Securities Exchange. FILE PHOTO | NMG The Capital Markets Authority (CMA) has flagged the dominance of five companies — including Safaricom — in the 65-stock Nairobi bourse as a big risk, with the performance of their shares dictating whether the market goes up or down on any given day.
The top five firms at the Nairobi Securities Exchange (NSE) have grown their share of the market’s total investor wealth to 76.4 percent, up from 65 percent three years ago. This has made it difficult for investors to measure the true performance of the bourse due to the companies’ outsized influence on key market indicators.
The combined market value of Safaricom #ticker:SCOM, Equity Bank Group #ticker:EQTY, East Africa Breweries Limited (EABL) #ticker:EABL, KCB Group #ticker:KCB and Co-operative Bank #ticker:COOP now stands at Sh1.669 trillion, compared to the total NSE market cap of Sh2.183 trillion.
Safaricom alone is worth more than all the other listed firms combined, with its valuation of Sh1.181 trillion accounting for 54.1 percent of the NSE’s market capitalisation.
“Market concentration remains a key risk within the Kenyan capital markets landscape… the top five companies by market capitalisation accounted for an average of 74.14 percent (in quarter one), the highest in the last four quarters, further increasing the exposure risk that the Kenyan market faces,” said the CMA in its market soundness report for quarter one 2020, released last month.
Their influence is particularly seen on the NSE All Share Index, which is weighted on market capitalisation meaning the larger firms have bigger weight on the index.
One of the factors behind the dominance of the five firms is the drought in big ticket listings at the Nairobi bourse in recent years.
Delisting of firms like KenolKobil and erosion in value of hitherto blue chip stocks like Kenya Airways #ticker:KQ and Kenya Power #ticker:KPLC has cemented the stranglehold by the five firms.
Three of the dominant firms — Safaricom, Equity and Co-operative Bank — came into the market during the IPO boom years of 2005 to 2009.
The CMA now says that it needs fresh listings of high value firms to correct the market imbalance. “To diversify the number and quality of listed entities the CMA is working with market players – Privatisation Commission, Kenya Private Sector Alliance, Kenya Association of Manufacturers amongst others in identifying potential issuers within the Kenyan market – both large cap and SMEs as a way of increasing diversity within […]
