The stock exchange has dropped to a 51-month low as major stocks continue to suffer from declining institutional investor purchases due to negative corporate announcements and post-Brexit foreigner selloffs.
The NSE 20 Share Index year-to-date return now stands at a negative 13 per cent at 3,515 points, a level last seen in April 2012. Market capitalization is down by Sh53.4 billion to Sh1.996 trillion since January.
“Quite a good part of the fall in the market prices can be attributed to the poor financial performance of a number of companies. We have seen the negative news coming from Mumias Sugar, Uchumi, Kenya Airways and others. This has contributed to the fall in prices,” said Paul Mwai, chief executive of AIB Capital.
Mr Mwai said institutions were cautious in their investments in the stock market, adding that they tended to go for fixed-income securities as opposed to the equities.
He also cited challenges facing the banking sector regarding loan loss provisions and the consequent lower profitability as having pushed down banks’ share prices.
“Politics is also an issue because we are getting closer to the General Election and this is being reflected in share prices,” said Mr Mwai.
Half of the market’s decline this year has come in the past one month, when emerging markets like the NSE have been feeling the heat of cautious trading in the wake of the Brexit vote that has had the effect of pushing capital towards the US and European markets, traditionally regarded as more secure.
Before the Brexit vote, the NSE 20 Share Index was 7.3 per cent down on a year-to-date basis. The market has gone on to add a decline of six per cent in the four weeks since the vote.
After falling sharply in the immediate aftermath of the British vote, the market rallied briefly in the first week of July before sliding to record a decline in the last nine trading sessions as foreign investors sell more than they buy.
“We expect further weakness in overall market to continue in the short-term, on the back of relatively high sell side activity from foreigners,” said Faida Investment Bank in their latest weekly market report.
Only Safaricom has appreciated in valuation among the 20 constituent stocks of the NSE 20 share index over the one month period. The telco giant has gained 13.0 per cent year to date.
This story was first published in the Business Daily