Nairobi bourse stocks defy virus to gain Sh264bn in a month

Investors at the Nairobi Securities Exchange #ticker:NSE (NSE) have gained Sh264.5 billion over the past month, cutting the coronavirus-driven losses amid an economic shock that towers over the financial crisis a decade ago.

The Nairobi bourse notched up healthy gains in recent days as investors sought to buy stocks at a bargain, hoping for outsized capital gains when the stock market recovers.

The value of all the stocks on the Nairobi bourse stood at Sh2.265 trillion Wednesday compared to Sh2 trillion in April, but remains below the Sh2.6 trillion peak of January 10.

Safaricom #ticker:SCOM , KCB Group #ticker:KCB, Equity Group #ticker:EQTY and East African Breweries Limited #ticker:EABL (EABL) accounted for about 82.4 percent of the paper wealth gain over the period, underlining the impact of the four counters in shaping the performance of the NSE.

The four had also accounted for about 72 percent of the paper wealth erosion when the bourse hit its lowest level in mid-March as the spread of the coronavirus and other economic headwinds sparked an exit of foreign investors.

Dealers reckon that demand from local shareholders, especially high-net worth investors, is behind the rally happening in the backdrop of grim performances of national economies.

The start of the dividend paying season has also triggered demand for stocks at blue chip firms that make up the NSE 20-Share Index and set to distribute Sh102.9 billion to shareholders in coming weeks.

“The rally can be partly attributed to Safaricom, which has seen a spike in foreign investor interest. While foreign investors were selling banking stocks, local investors have been buying,” Churchill Ogutu Senior Research Analyst at Genghis Capital said.

The Safaricom share rose yesterday to Sh30.45 a share from Sh26.50 on April 8, adding Sh158 billion to the wealth of the telco’s owners over the past month to Sh1.219 trillion or more than half of the NSE’s value.

This emerged in a period when Safaricom’s net profit jumped 19.5 percent in the year ended March to Sh74.7 billion.

“Banking counters have been solid and we saw a counter like EABL dip significantly, which offered a buying opportunity for investors. So investors are looking at post-Covid 19, while some companies will struggle some companies will still ride the wave,” Mr Musau said.

Restrictions imposed to curb the spread of the virus like the nationwide dusk-to-dawn curfew and the ban on public gatherings has hit consumer spending, and subsequently company sales and profits.

The latest dividend payouts from the blue chips firms showed an increase of 8.6 percent on the Sh94.8 billion the companies paid in 2018, signalling that their boards and managements are confident that they have adequate cash to navigate the crisis.

Equity’s share has gained 33.3 percent over the past month, adding Sh33.5 billion to the owners’ wealth. KCB’s share closed trading at Sh41.95 yesterday from Sh34.50 on April, increasing its market value by Sh23.91 billion while EABL investors gained Sh22.71 billion as the share price rose 19.8 percent to Sh175.25 in the period under review. Mr Musau said that the post-coronavirus strategy for foreign investors with African portfolios favoured Kenya with South Africa witnessing a decline while Nigeria has been hard hit by the collapse of oil prices—its main export commodity.

“Kenya is attractive to the international market especially since we have no foreign exchange controls. There is a diversity in the market,” he said.

Ahead of the spread of coronavirus, foreign investors accounted for about 70 percent of daily trading at the NSE. They were net sellers in March and April.

Analysts attributed the sell-off at the NSE to the exit of foreign investors, adding that the stampede is not predictive of earnings prospects of Kenyan firms.

Foreign investors had also been selling stocks in other markets, including the United States, Japan, the United Kingdom and Australia.

Their risk aversion has intensified in recent days owing to a confluence of factors, including the price of oil crashing to below $35.6 per barrel and the declaration of coronavirus as a global pandemic.

The pandemic has paralysed social and business activities across the globe, prompting the International Monetary Fund (IMF) to forecast the worst economic fallout since the 1930s Great Depression, with only a partial recovery seen in 2021.

The scare is disrupting travel and supply chains and weakening demand for goods and services worldwide, raising the spectre of a substantial reduction in global economic growth.

Stock markets across the global made healthy gains in April when US stocks notched their biggest monthly rally since 1987. UK blue-chips briefly entered a bull market in the month.

At the NSE, the fears outweighed expectations of dividend payments starting this month for most firms whose financial year ends in December.