A recent report says the general rise of stock prices at the Nairobi Securities Exchange (NSE) pushed brokers and investment banks back to profitability in 2017.
Share prices increased by an average of 28 percent in the year ended December 2017 “leaving the market intermediaries with a combined net profit of Sh36.14 million in contrast with a total net loss of Sh30.32 million in 2016.
Company performance stood between net profits of Sh236.27 million and a loss of Sh145.72 million. The number of companies that made a loss in 2016 rose from 11 out of 18 to 9 in 2017 hence highlighting how the “rising tide in the bull market helped lift their earnings.”
Industry analysts attribute the improved market performance to foreign investor activity which accounted for over half the turnover.
“There was depressed activity in the first quarter of the year but the second and third quarters saw panic selling and buying which increased turnover. In between the elections in the fourth quarter, there was panic as well as speculative buying and selling,” Willie Njoroge, chief executive of the Kenya Association of Stockbrokers and Investment Banks (KASIB), the industry lobby stated.
In a bid to cut costs in 2016, the brokers and investment banks laid off come employees and reduced office space. The Kenya intermediary market has 23 investment banks and operating brokers.
Njoroge also said the drop of interest rates in 2017 following the interest rate capping law pushed investors into the equities market hence boosting brokers’ commissions and fees that are more than what they receive in a fixed income market.
The depreciation of the shilling also boosted the income for intermediaries because it foreigners could buy more shares for each dollar invested.
Other industry experts acknowledge that brokers and investment banks are enjoying better fortunes. However, they opine that the market is still functioning below its potential particularly because most local investors are holding their shares instead of trading them. As a result, foreigners have dominated the market.
“The market is driven by foreign investors who trade more often. They buy and then sell when the opportunity arises, but local investors are still holding on to their shares and bonds,” said Job Kihumba, the executive director at Standard Investment Bank. He also said return on investment (ROI) remains low regardless of the return to profitability.
Renaissance Capital recorded the highest net profit increase at 95 percent to Sh236.27 million in 2016 compared to Sh121 million in 2016.
Brokerage commissions, which were the major reason for the company’s profitability, stood at Sh386.4 million compared to Sh274.6 million in 2016.
Apex Africa recorded a 20.3 percent growth to Sh11.75 million in 2017 while Genghis Capital made the biggest loss out of the 13 companies by posting a Sh145.7 million net loss compared to Sh136.47 million in 2016.