NSE faces uphill task wooing back and retaining investors – The East African
Investors at the NSE, however are less active until the Kenya general election takes place in August. PHOTO | FILE
Nairobi Securities Exchange (NSE) is facing challenges attracting and retaining investors on the bourse after the end of the stockmarket boom of 2008. Investors are opting for alternative investment opportunities in the market, including government bonds, investment funds and betting.
The EastAfrican has learnt that NSE’s desertion has also been compounded by shrinking household incomes and high cost of living fuelled by escalating fuel prices and depreciating local currency, which pushed many potential investors into a financial quagmire.
“There are other investment opportunities coming to the market,” said Job Kihumba, executive director in-charge of corporate finance at Standard Investment Bank.
“Individuals with, say Ksh5,000 ($44.24), will realise they definitely have somewhere to put that money away from the stockmarket. But there is also another aspect people ignore. At individual level there isn’t a lot of liquidity as sources of income have diminished and the cost of living is very high.”
Investors are now looking for safer investment options with guaranteed returns compared with the stockmarket that is highly volatile, he added.
“We have other opportunities available now. For instance, there are a lot of investment funds being created and these tend to be fixed return type and commercial banks are also coming into this space. The latest being the shilling fund launched by Standard Chartered Bank Kenya,” he said.
“People now have opportunity to invest in securities that are as volatile as the stockmarket because a lot of investors are risk-shy and do not want to take too much risk especially where uncertainty is high.”
A study by Capital Markets Authority shows that Kenya, like many emerging markets, offers a favourable return on instruments such as infrastructure bonds that offer a double-digit return compared with other products considered high risk such as equities. And as a result, returns earned from investments play a significant role in determining where investors put their money.
Central Bank data shows that the government went into the domestic market to borrow, on a 19-year infrastructure bond auctioned on February 16. It received bids totalling Ksh132.3 billion ($1.17b) against the advertised Ksh75 billion ($663.71m), representing a performance of 176.3 percent.
On the other hand at the NSE equity turnover and total shares traded both declined by 23.4 percent during the week ending February 17.
“Any time we have a political situation like now, some people find it a bit risky and keep away from the market or simply sell out. Others see it as an opportunity and buy because prices tend to be lower. It depends on the risk appetite of a particular investor but of course from overall trends and reality, investing in shares or equity investments has not been attractive,” said Mr Kihumba.
Election jitters
“Obviously there is always a bit of slowdown during an election period. If you are looking to buy a big chunk of shares, you would probably do so after the elections, and buy them cheaper,” said Paul Mwai, the chief executive of AIB-AXIS Capital Ltd and vice chairman of NSE.
Mr Mwai said government bonds seem to have become quite popular particularly because the state is heavy at a rather favourable rate and the fact that bonds are safer in turbulent times.
“So even if there seems to be increased appetite for government paper but the stockmarket is still there with concentration seeming to be on the key stocks, particularly the banking sector as people take advantage of post Covid-19 recovery,” said Mr Mwai.
Last year, equity turnover on the NSE decreased by 7.58 percent to Ksh137.41 billion ($1.21b) from Ksh148.68 billion ($1.31b) recorded in 2020 while turnover in the bond market increased by 38.33 percent to Ksh956.97 billion ($8.46b) from Ksh691.83 billion ($6.12b) in the same period.
Bond market performance was buoyed by attractive infrastructure bonds issued during the year that spurred investor participation owing to their good returns and tax-free nature. For instance, the government issued an infrastructure bond in September 2021 seeking to raise Ksh75 billion ($663.71m) but recorded a performance rate of 201.67 percent after bids worth Ksh151.26 billion ($1.33b) were submitted.
In the corporate bond market good performance was observed on the East African Breweries Ltd’s fixed rate medium term note of Ksh11 billion ($97.34m), the Centum Investment Company’s medium-term note of Ksh4 billion ($35.39m) and the Family Bank multicurrency medium-term note of Ksh8 billion ($70.79 million).
Last week, CMA announced that Kenya Mortgage Refinance Company‘s debut bond issue valued at Ksh1.4 billion ($12.38m) had been oversubscribed nearly sixfold by attracting bids worth Ksh8.1 billion ($71.68m).
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