NSE faces an uphill battle to win back and retain investors

By JAMES ANYANZWA

The Nairobi Stock Exchange (NSE) is facing challenges in attracting and retaining investors on the exchange after the end of the 2008 stock market boom. Investors are opting for alternative investment opportunities in the market, including government bonds , investment funds and bets.

East Africa learned that NSE desertion has also been compounded by declining household incomes and high cost of living fueled by escalating fuel prices and local currency depreciation, which have pushed many potential investors into a financial quagmire.

“There are other investment opportunities in the market,” said Job Kihumba, executive director in charge of corporate finance at Standard Investment Bank.

“People with, say, 5,000 Ksh ($44.24), will realize that they definitely have a place to put that money outside of the stock market. But there is also another aspect that people are unaware of. individual level, there is not much liquidity because the 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 to the highly volatile stock market, he added.

“We have other opportunities available now. For example, many investment funds are created and these tend to be of the fixed return type and commercial banks are also entering this space. The latest being the shilling fund launched by Standard Chartered Bank Kenya,” he said.

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“People now have the option of investing in securities as volatile as the stock market because many investors are risk averse and unwilling to take too much risk, especially where uncertainty is high.”

Research by the Capital Markets Authority shows that Kenya, like many emerging markets, offers favorable yield on instruments such as infrastructure bonds which offer double-digit returns compared to other products considered high risk such as stocks. And therefore, the returns generated by investments play an important role in determining where investors put their money.

Central Bank data shows the government has gone domestic to borrow, on a 19-year infrastructure bond auctioned on February 16. a performance of 176.3 percent.

On the other hand, the turnover of NSE shares and the total number of shares traded both decreased by 23.4% during the week ending February 17.

“Whenever we have a political situation like today, some people find it a bit risky and either steer clear of the market or just sell. Others see it as an opportunity and buy because the prices tend to be lower.It depends on a particular investor’s risk appetite, but of course, based on general trends and reality, investing in stocks or equity investments has no been attractive,” Mr. Kihumba said.

The electoral jitters

“Obviously, there is always a bit of a slowdown during an election period. If you are looking to buy a large chunk of the shares, you would probably do it after the election and buy them cheaper,” said Paul Mwai, managing director of AIB-AXIS Capital Ltd and vice chairman of NSE.

Mr Mwai said government bonds seem to have become very popular, particularly because government is heavy at a rather favorable rate and bonds are safer in turbulent times.

“So while there seems to be an increased appetite for government papers, but the stock market is still there with a focus appearing to be on key stocks, particularly the banking sector as people take advantage of the post Covid recovery. -19,” Mr Mwai said.

Last year, stock turnover on the NSE declined by 7.58% to Ksh137.41 billion ($1.21 billion) from Ksh148.68 billion ($1.31 billion). billion) recorded in 2020, while the turnover in the bond market increased by 38.33% to reach 956.97 billion Ksh (8.46 dollars). b) Ksh 691.83 billion ($6.12 billion) over the same period.

Bond market performance was boosted by attractive infrastructure bonds issued during the year which stimulated investor participation due to their good yields and tax-exempt nature. For example, the government issued an infrastructure bond in September 2021 aiming to raise Kshs. worth 151.26 billion Ksh (1.33 billion dollars).

In the corporate bond market, good performance was seen on the East African Breweries Ltd fixed rate medium term note of Ksh 11 billion ($97.34 million), the medium term note of Centum Investment Company of Ksh 4 billion ($35.39 million) and Family Bank’s Multi-Currency Medium Term Note. Ksh 8 billion ($70.79 million) term note.

Last week, the CMA announced that Kenya Mortgage Refinance Company’s debut bond issue, valued at Ksh 1.4 billion ($12.38 million), was nearly six times oversubscribed by attracting bids from worth Ksh 8.1 billion ($71.68 million).

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