A woman stands outside one of Safaricom shop on Kimathi Street that remained closed during the Memorial Service of the late Safaricom CEO Bob Collymore at All Saints Cathedral on July 4, 2019. PHOTO | SALATON NJAU | NMG Safaricom’s #ticker:SCOM dominance of the NSE has hit a new peak after the telecommunication firm’s market valuation exceeded 50 percent of the Sh2.22 trillion stock market.
Safaricom’s valuation of Sh1.13 trillion at close of trading Thursday is now 50.7 percent of total investors’ wealth at the Nairobi Securities Exchange (NSE), a factor that is largely attributable to the bear run that has precipitated a sharp drop in the market capitalisation of other listed firms.
Crossing the 50 percent threshold means that Safaricom’s market worth is now more than the combined valuation of all the other 62 listed companies.
Safaricom is still shy of its highest-ever market capitalisation of Sh1.27 trillion achieved in March last year, but the company has avoided the deep erosion of value that other companies have suffered, pulling down the benchmark NSE 20-Share Index to a 10-year low.
The telco’s share price has gone up by 25 percent or Sh5.70 this year to hit Sh28.25, adding more than Sh228.4 billion to its market valuation at a time when many other companies, including other blue chip counters, are stuck in a price slump.
The firm’s huge dominance in the market has seen a sharp contrast in the performance of key indicators, where the NSE All-Share Index and market capitalisation have gained 5.1 and 5.7 percent respectively since January, but the NSE 20-Share Index is down 13 percent to a 10-year low of 2,467 points.
Investors who track the indices are therefore presented with a situation where overall market wealth has gone up by Sh120 billion, but the benchmark index is touching multi-year lows.
The divergence in the direction of the two indices is due to the huge influence the Safaricom stock has on the All-Share Index, which is market cap weighted.
On the price-weighted NSE 20-Share Index, other blue chips such as East African Breweries Limited #ticker:EABL, BAT #ticker:BAT, Standard Chartered #ticker:SCBK and Bamburi #ticker:BAMB that carry a higher nominal share price have a greater weight.
The Capital Markets Authority (CMA) regularly flags the influence the top firms have in terms of traded activity and investor wealth as a market risk.
Should such companies encounter a shock or fall into difficulties, the effect on the stock market would […]