Why Kenyans Aren’t Investing At The Nairobi Bourse

Why Kenyans Aren’t Investing At The Nairobi Bourse

The number of share accounts opened by Kenyan investors in the six months leading to June 2013 dropped 17 percent compared to the previous year indicating declining interest by locals in the securities market, despite its returns ranking second in Africa.

Data from the Capital Markets Authority, which holds records of electronic accounts required to trade in listed equities, shows local retail investors opened 8,136 accounts in the first half of 2013 compared to 9,801 in a similar period last year and 14,518 in 2011.

The decline has been attributed to lower savings and lack of awareness of the opportunities by locals in a market which is currently up 33 percent, according to the MSCI Emerging Markets Survey of select African markets. Kenya’s securities market is second only to Ghana’s, up 46.12 percent. The G7 index is up 15.3 percent.

“There has been a drop in capacity to save, following rise in inflation which cuts down disposable income used to invest,” said Johnson Nderi, head of research at Nairobi-based Suntra Investments in an interview with AFKInsider.

In 2011 the cost of living shot up in Kenya. The Central Bank attributed it to too much cash chasing few goods which advised its decision to increase the cost of money. Inflation rate peaked at 19.7 percent in December of that year, up from 5 percent when the year started.

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Despite the dwindling income fortune, Kenyan retail investors are also accused of being sentimental in their decision making unlike the more sophisticated foreigners who have a technical approach enabling them to time their entry and exit.

“Investing in our market is long term but most retailer investors don’t have the patience,” said Vimal Parmar, a research analyst with Burbidge Capital speaking to AFKInsider.

Foreign investors have continued to increase their presence in the securities market with more of them opening trading accounts each year. In the first half of 2013, both corporate and individual foreign investors opened 447 share accounts compared to 360 in 2012.

Foreign investors own a large stake of the Nairobi Securities Exchange, holding 41.5 percent of the total listed shares, up from 25.7 percent two years ago. Low returns in their home markets have forced foreign investors to hunt for bargains in the Kenyan market, where locals are seeking a way out following what they term as “disappointing returns.”

“Globally most central banks are printing cash making it easier for their investors to borrow and invest here where returns are higher,” said Nderi.

Liquidity in the Kenyan market makes it attractive as investors are able to easily enter and exit as opportunities and risks avail themselves. In July, investors bought shares worth $86 million and sold $66 million.

In the same month, the indicative 20-share index at the NSE rose by 4.1 percent, a bullish run that was attributed to the performance of financial counters which are releasing their half-year results. Kenya’s banking sector has posted huge profits, with its banks ranking among the top 10 in asset utilization globally, making investors hustle for their shares at the bourse.

Analysts at Stratlink Africa were guarded on whether the bullish run would continue through the second half of the year with inflation being a major concern.

“We remain cautiously optimistic on our bullish position for the market over the next two months. Investors will be keen to see how the government responds to the buildup in inflationary pressures,” the research firm said in an investor briefing.

Inflation rates have risen over the last two months, fanning speculations that interest rates are looking up which has the effect of drawing money from equities and into the debt market.

Kenyans have also kept away from the equities’ market due to first-time disappointment associated largely with Safaricom shares that were listed in 2008 through an initial public offering.

Telecommunication giant Safaricom is the most profitable company in Kenya with more than 18 million subscribers. This attracted investors to its offer leading to 532-percent subscription. Buyers also hoped to grow their wealth in folds immediately after the share started trading, similar to the lucrative returns seen in the 2006 IPO of power producer Kengen, where share price more-than tripled after listing at Sh11.90 ($0.14) per share.

However, upon commencement of trading the stock, offered at Sh5 ($0.06) per share, it peaked at Sh8 ($0.09) before starting a slow decline to fall below the subscription price four months after the listing and largely remained there until December.

During this time investors who joined the market on the hype of the IPO had counted their losses, licked their wounds and swore never to re-enter the stock market.

In 2009, Safaricom had more than 828,000 shareholders but by March the number had dropped to 698,863. The stock is currently trading at Sh8.50 – more than double the price a year ago.

Local investors have also found a faster-yielding alternative investment option in real estate which has enjoyed a run for a decade.