Foreign investors take fresh positions as end of dividend season and uncertainties about this year’s performance triggers flight to safer assets such as treasury securities. FILE PHOTO | NMG The prices of blue chip companies that make up the Nairobi Securities Exchange (NSE) 20-Share Index have dropped to a 10-year low, reflecting investors’ expectations of depressed earnings for the listed firms.
Insurance, commercial and banking sector stocks are the worst hit, pulling down the NSE 20-Share Index, which captures movement of select blue chip stocks, to 2,552.19 points– a level last seen in March 2009.
Investor wealth as measured by market capitalisation had shrunk to Sh2.251 trillion as at yesterday, from Sh2.523 trillion as at early August last year, meaning investors have lost about Sh272.6 billion in paper wealth within the one year period.
Analysts said the sharp drop in share prices is driven by investors’ flight from “risk assets” and are flocking to safe investment havens including Treasuries. The market traders also say local institutional investors are concerned about the unpredictable swings in earnings posted by listed companies.
“Our investors here have been limited to a lot of speculative retail and heavily constrained institutional. When retail investors don’t get rapid jumps and rises, they lose interest. Patient, dividend focused investing is not a core habit we have,” said Deepak Dave, an analyst with Nairobi-based Riverside Capital.
Bank stocks, which account for 28 percent of the NSE’s total market valuation and a fifth of the market’s 96.2 billion total issued shares, have been on a decline partly attributed to the end of the dividend announcements season.
Foreign investors ordinarily take profits in June and offload stocks ahead of full-year dividend payments after which they take fresh positions based on their earnings projections for different stocks.
The May to June sell-off ordinarily coincides with the summer season in the West when most portfolio investors take a break.
Insurance stocks, which have been the worst hit, have fallen by 62 percent on average in the year to date. The sinking share prices are linked to poor performance by insurance firms.
Britam has dropped 48.59 percent in the past 52 weeks while Kenya Re has fallen 77.28 percent in the period. A third of insurance companies plunged to a combined pre-tax loss of Sh8.5 billion last year, hurt by high costs and a bearish NSE market and other factors that saw the sector record a 68 percent dip in profitability last […]