The Nairobi Securities Exchange All-Share Index is set to halt a five-month winning streak in September after investors’ sentiments soured due to China Evergrande Group ’s crisis, and a local rally driven by growth in corporate earnings motivated investors to take out gains.
So far this month investors on the bourse have lost 2.5% after market valuation dropped to 2.73 trillion shillings ($24.7 billion). The decline will be the second this year after a 4% drop in March. The worst performing stocks since the beginning of September are Uchumi Supermarkets Ltd. , Nairobi Securities Exchange Plc and Sameer Africa Ltd. respectively, according to data compiled by Bloomberg.
“The emerging markets risk sentiment became a little bit more fragile early- to mid-September because of the Evergrande crisis and markets coming to grips with how that would affect emerging markets more broadly, just given how much China contributes to global growth,” said Eva Wanjiku Otieno, Africa strategist at Standard Chartered Bank Kenya .
Following the rally by the All-Share index, some portfolio managers also decided to lock in gains as the year draws to a close, Otieno said.
“Valuations are still quite cheap compared to where they were five to six years back, so that could still support good performance in the equities market,” she said. “The emerging markets risk sentiment might also affect the performance of the securities exchange as we go into December and with the tapering announcement we could see some portfolio outflows impacting the securities exchange. That is a risk to look out for.”
Federal Reserve Chair Jerome Powell said last week that the U.S. central bank could begin scaling back asset purchases in November and complete the process by mid-2022, while explaining the first steps toward withdrawing emergency pandemic support for the U.S. economy.
“We could see more activity especially in the securities represented in the MSCI,” Otieno said.
The past five weekly Kenyan Treasury bills auctions were undersubscribed due to factors including lower yields than earlier in the year, she said. The return is expected to climb slightly in the coming months, she said.
“The authorities had also mentioned at some point that they would like to reduce the supply in T-bills so maybe this could be a good way of trying to shift the market interest more toward the longer dates,” she said.