Local retail investors have been scared off by stockbroker insolvencies, but foreign and institutional funds continue to support blue-chip stocks
To walk through the public gallery above the trading floor at the Nairobi Stock Exchange (NSE) is to witness evidence of a sea change in the business of buying and selling shares. The buzzing hive of retail traders, who used to scramble for space to view the board beneath the glass-walled gallery as they plotted to get a slice of the equities boom, are nowhere to be seen.
In one corner of the hall, the automated trading machines appear disused, and the sight of stockbrokers discussing picks, as when stocks soared in 2006 and 2007, is also missing. “These days there is little activity here,” says John Mugendi, a doorman at the entrance of the trading hall, as he waves his arms over a bare trading room.
He suspects that the country’s soft economy is behind the small number of investors paying a visit to the trading gallery. Indeed, data from the NSE shows that local investors, notably retail traders, have kept away from the stock market as foreign investors continue to dominate trading. Foreign trades have accounted for about 70% of the total turnover since the start of the year, up from 54% in 2009 and 40% in 2008.
The NSE 20-Share Index has risen from 3,247 points to 3,553 points since the start of the year. Kenya’s position as Eastern Africa’s financial hub has caught the eye of foreign investors, mainly Africa-dedicated funds keen to cash in on the promise of higher returns than those found in other parts of the world. Stocks with high daily turnover, such as Safaricom, East Africa Breweries, KCB Bank, Equity Bank, ?Mumias Sugar and Kenya Airways have remained the investors’ favourite picks.
Local institutional investors, including pension funds and insurance schemes, are gradually returning after opting to put their money in fixed-income securities and real estate.
For retail investors, the crisis of confidence brought on by the improprieties of some stockbrokers, the sluggish movement of shares and high inflation reversed a growing interest in the stock market over the past few years. The number of investor accounts had risen by more than 1.5m in just three years.
Most investors burnt their fingers in the first major bear run since an unprecedented stock market rush that started with energy company KenGen’s initial public offering in 2006. The collapse of three stockbrokers with significant retail clients is believed to have been the single biggest factor that scared away the majority of retail investors.
Though the government has introduced measures to boost confidence, including asking brokers to publish their annual accounts in the press and to reduce ownership by a single shareholder to no more than 25%, investors do not yet feel comfortable. “There are still issues to be sorted out in three stock brokerage firms,” says Stanley Osango, chairman of the Association of East Africa Investors.
This article was first published in The Africa Report April-May 2010 edition
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