Global jitters tore apart investor sentiment across 2018 but the resumption of trade negotiations on the backend of the year provided much needed respite.
This for stockholders supporting the recovery of capital markets in the early months of the year.
The interlude however turned out to be just a pause in the uncertainties with the US and China resuming their all out economic warfare at the start of month as the brokerage of a trade deal fell through.
Capital markets around the world have absorbed the biggest hit from the ongoing spats which also include the re-emergence of volatility in the Middle East.
The Dow Jones Industrial Average, the index for the 30 largest public firms in the United States for instance ended trading Friday down 98.68 points on what was a fourth consecutive weekly drop in the composite on news of stalled trade negotiations.
Back home, the Nairobi Securities Exchange (NSE) composite has been on a similar retreating trend losing its year to date gains in recent weeks as foreign investors adopt a wait-and-see policy in recognition of risks to participation in emerging markets.
While participation in the domestic market remains on a low risk assessment score, foreign investors remains dominant in activity having controlled 76.96 percent of the market turnover with net portfolio flows totalling Ksh.601 million in the first quarter of the year according to data from the Capital Markets Authority (CMA)
The inhibitions of the international based capitalists have seen the NSE 20 share index plunge in recent week closing trading Friday at 2665.52 points on a Ksh.2.17 trillion market capitalization.
The score is a far cry from the breach of the phycological 3000 points mark in early February and also sits well below the 2833.84 tally which defined 2018’s close.
Key share prices in the equities market have also plunged over the intermediating time to eat into investor returns in the short run.
Safaricom share price has for instance lost a combined Ksh.3.40 in the bearish run between May the 2nd and the 17th to trade at Ksh.26.15 while KCB and Equity Bank counters have too diminished in value to trade at Ksh.36.30 and 36.40 from Ksh.42.25 and Ksh.41.95 respectively.
“The slide in the NSE is attributable to reduced investor activity in the market. Local fund managers have taken a “wait and see” approach this year following the heavy foreign exit seen last year.
“Foreign investor activity in the market is only slowly picking up because the shilling has been resilient causing a concern for foreign investors, who have to factor in currency adjustments when investing in Kenya,” said Sterling Capital research analyst Justina Vuku.
Bulls over bears
In spite of the evident price dip at the NSE, experts expect the prevailing low valuations to offer an attractive entry position to potential investors. This despite the routine uneasiness by investors under the ongoing global volatility.
According to NIC bank’s Head of Research Elizabeth Ndung’u the low pricing in the equities market are likely to usher back investors while some stockholders would in the meantime to stability shift to alternative investment classes.
“We see a possibility of investors starting to accumulate at current prices. The other indicator we could see is a shift to other asset classes should the external factors persist. We note that Kenyan stock market remains attractive amongst the African countries. The low multiples are an indication that it its opportune for investors to invest,” she said.
Trends in government paper, traded mainly through the Central Bank of Kenya (CBK) are also indicative of the ongoing uneasiness by investors.
Traded bonds have in recent weeks fallen short of uptake with the 91 and 182 day paper representing the greatest levels of anxiety.
The Ksh.24 billion bond traded in the week running up to May 16 for instance attracted a 92.03 subscription rate, with oversubscription in the 1-year paper backing the trade as the performance rate in the 91 and 182 day paper fell-short of expectations posting a performance rate of 49.83 and 7.96 percent respectively.
This against a 107.22 and 102.60 subscription rate in the short paper during a corresponding bond sale a month earlier to April the 4th.
While inconsistencies have defined trade in government paper, prevailing interest rates of the domestic government debt instruments have held steady over the anxiety but for marginal fluctuations in the short run.
The average interest rate on the 91, 182 and 364 paper came in at 7.16, 7.81 and 9.31 percent respectively during last week’s auction, a minimal ease from the 7.34, 9.00 and 9.95 rates posted during 2018’s last auction.
Externally, the government through the National Treasury issued a new Eurobond over the course of last week attracting an order book of Ksh.950 billion (USD 9.5 billion) against the accepted Ksh.210 billion (USD 2.1 billion).
The over four and half times subscription rate was further solidified by the 7.0 and 8.0 percent pricing of the 7 and 12-year pegged tenor, dual-tranche bond, a lower pricing than the initial pricing thoughts (IPT) of 7.5 and 8.5 percent respectively at the start of issuance.
The Kenyan shilling has provided for the strongest anchoring amidst all the volatility, holding off pressures of dollar demand from oil importers most recently.
While some currencies in the emerging economies continue to slump from the ongoing trade spat, the local unit has ridden the wave to remain relatively unchanged against the green buck.
The shilling for instance exchanged at Ksh.101.11 at the close of trading Thursday to stay within its broad 3 percent range to the US dollar over the medium term.
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