Investors’ wealth at the Nairobi Securities Exchange (NSE) plunged Sh95 billion as local traders raced to profit from stocks bought cheaply a month ago.

The NSE’s market capitalisation closed at Sh2.15 trillion on Monday, down from Sh2.25 trillion last Thursday as a result of the profit taking, analysts said.

The drop followed a rally at the Nairobi bourse as local investors scrambled to buy shares that were trading at multiple-year lows following a sell-off by foreigners.

Before Thursday, the NSE had gained Sh433 billion from June 27 when the market value dipped to a five-year low of Sh1,820 trillion.

“It is probably just some profit taking. Safaricom moved from Sh23 to Sh32 so investors who bought low are crystallising their gains. Also, those who wanted to sell but thought prices were too low now have the opportunity,” said Muathi Kilonzo, head of equities at EFG Hermes Kenya.

The profit taking has been more pronounced in the Safaricom stock after the share rose from Sh23.15 on June 27 to Sh32 last Thursday, translating to gains of Sh354 billion.

The gain prompted investors, especially locals, to sell the telco’s shares over the past two days. The sell-off saw Safaricom’s shares drop to Sh30 at the close of trading on Monday or Sh82 paper loss.

This means Safaricom accounted for 86 percent of the bourse paper loss despite the firm closing its books on July 29 for dividend payment of Sh0.75 a share.

The telco accounts for 56 percent of the entire NSE market wealth, a dominance that is making it difficult for investors to gauge the performance of the bourse.

East Africa Breweries Limited (EABL) shed Sh2.17 billion in the two days, followed by KCB Group (Sh1.76 billion) and Equity (Sh1.5 billion).

Despite the two-day loss, investor wealth at the NSE has risen Sh338 billion in the past three weeks, following increased trading on Safaricom, Equity Group, EABL and KCB.

The four stocks, which account for three-quarters of the market’s total valuation, had fallen to 52-week lows towards the end of June on the back of sustained foreign investor selling.

Renewed local investor demand due to favourable entry prices has seen analysts forecast the market making gains despite the profit taking on Safaricom.

This is because there is still ample supply from foreign investors who have continued to move their capital to markets such as the US after an upward review of rates to fight rising inflation, which has raised returns on western bonds.

This inflationary pressure across the globe is a result of high energy and food prices following Russia’s invasion of Ukraine in February, which cut off wheat and fuel exports from the Black Sea region.

Supply chain constraints have also raised the cost of goods, largely due to higher shipping costs, feeding the inflationary pressure.

Similar price pressures have hit the Kenyan economy, where prices of essential food items such as flour and cooking oil have risen sharply, pushing inflation to a 58-month high of 7.9 percent.

Due to the flight of capital from emerging markets, local stock prices fell sharply in June.

The impact

Multiple stocks fell to 52-week lows, ushering in a buyers’ market where there were attractive entry prices offering good dividend yields and potential for capital gains once the market corrected itself.

“Foreign investors are still recording net outflows, which has provided a steady supply for local investors looking to get into the market, hence the rise,” said Melodie Ndanu, an analyst at Genghis Capital.

The impact of the four counters on the fortunes of the NSE has once again exposed the exposure risk facing the market, making it difficult for investors to gauge the true health of the stock market.

The performance of these four stocks often shows a market that is either in good health or in trouble, disregarding underlying fundamentals for a majority of counters.

For instance, a sharp gain in the Safaricom stock results in a significant jump in investor wealth and the NSE Al Share Index, even when other counters record limited movement, due to the telco’s massive footprint on the bourse.

These stocks also dominate the foreign trading desk and daily traded turnovers, giving foreign investors outsize influence on the bourse despite holding just 20 percent of the issued shares.

Local investor apathy has also helped cement this dominance by foreign investors.

Most local retail investors entered the market during the IPO boom of the mid-2000s, but rarely traded actively afterwards after cashing in on their stock or were locked in by low prices for the new market entrants whose fortunes dipped after listing.

Earlier this year, the Central Depository and Settlement Corporation (CDSC) revealed that nearly 97 percent of equity accounts used for trading at the NSE had been dormant in the past two years, meaning that only 61,000 of the 2.03 million share accounts at the depository have participated in trading over the period.

Mainstream Renewable Power together with investment company Actis have announced the sale of Africa’s largest pure-play renewable energy independent power producer (IPP) Lekela Power, to Egyptian company Infinity Group and Africa Finance Corporation (AFC).

News of the sale was revealed in a joint statement by Mainstream and Actis on Monday, months after reports of the potential transfer – estimated to be worth approximately $1 billion – surfaced a few weeks ago.Although the deal awaits regulatory approval, should authorities give the greenlight, AFC will acquire Lekela’s one gigawatt (GW) fully-operational wind assets, as well as five operational wind farms located in South Africa, one operational wind farm in Egypt and Senegal each, together with other development opportunities Lekela has in Ghana, Senegal and Egypt.

“We’re proud to leave Lekela Power strongly positioned for its next phase of growth as an acknowledged sustainability leader, supplying much-needed clean energy to communities across Africa, building on our net zero commitment,” Actis’ partner and head of energy infrastructure Lucy Heintz says.

SA’s power crisis

Forming part of Lekela’s South Africa portfolio is the Khobab Wind Farm located in Loeriesfontein – a small town in the Northern Cape. According to Lekela’s website, the wind farm provides about 564 000 MWh of clean energy to the country’s national grid every year, serving approximately 170 000 South African households.

In the face of South Africa’s energy supply crisis, IPPs like Lekela will play an important role in helping alleviate pressure from struggling state-owned power utility Eskom, which has been vocal about its inability to meet electricity demand in the country, as well as the role that renewables will play in closing that supply gap.In the meantime, South Africans who have been bearing the brunt of the worst bout of power cuts in the last few weeks wait with bated breath for President Cyril Ramaphosa to reveal his grand plan that will hopefully see a nearing end to the country’s energy supply crisis. “Our vision is of a world electrified by renewable energy. Together with our strategic shareholders Aker Horizons and Mitsui, we are well positioned to lead and truly accelerate the transition to renewables in South Africa, across the African continent and in markets globally.”

Uganda’s Central Bank has raised its benchmark policy rate by one percent to 8.5 percent in a radical move. This was occasioned by panic amidst surging inflation levels and increased pressure exerted by the US dollar against the local currency as a result of spikes in interest rates registered by developed economies.

This development follows a sudden monetary policy committee meeting held on Tuesday on the back of latest inflation data, signs of vulnerability exhibited by the local currency against the US dollar, and raging uncertainty over global supply chain shocks caused by the ongoing Russia-Ukraine military conflict.

The latest one percent increase in the Central Bank Rate (CBR) comes on the heels of a previous one percent increment announced last month. Besides growing worries pegged to rising commodity prices, increased interest rates tied to treasury bills and bonds plus trading patterns recorded by the local shilling against the US dollar could dominate the Central Bank’s policy radar in the aftermath of the policy announcement.

“Inflation continues to rise, largely influenced by external cost pressures stemming from higher global food and energy prices, persisting global production and distribution challenges, as well as rising domestic food crop prices due to dry weather across the country…Annual food crop inflation has sharply risen from 0.7 percent in February 2022 to 14.5 percent in June 2022…The MPC considers that the monetary policy stance will have to be tightened even further so as to ensure that inflation eases back to target in the medium-term…” reads Bank of Uganda (BOU)’s latest monetary policy statement.

The Uganda shilling rose by around Ush30 ($0.008) against the US dollar a few hours after the policy rate announcement and closed at Ush3,718 against the green buck on Tuesday.

“The Central Bank may be constrained in tackling supply side driven price shocks but its mandate on matters of ensuring price stability remains. The one percent increase in the CBR seems inevitable to us in a situation of surging inflation. The government raised Ush1.4 trillion ($373.1 million) from the local debt market in June through scheduled bond auctions and also mobilised another Ush748 billion ($199.3 million) through an unscheduled Treasury Bond auction done last month. Those moves have ignited increases in interest rates earned on Treasury bonds of late and this has helped retain some offshore investor interest in this market,” said Benoni Okwenje, the General Manager for Financial Markets at Centenary Bank Limited.

Africa-Press – Tanzania. DAR ES SALAAM Stock Exchange (DSE) is looking at a strong recovery this year after experiencing one of the lowest activities ever recorded of 104bn/- last year.

According to Orbit Securities Company, the first six months this year has seen DSE recording an equity turnover of 75bn/- which is about 42 per cent higher than a turnover of 52.7bn/- of the similar period last year.

The number of shares that was transacted also improved from 68 million shares in the first half of 2021 to 94 million shares that was transacted during the six months this year.

“More on the stock market performance, we have observed that in the six months domestic equities have performed better than the cross-listed equities,” the report said.

As a result, the domestic Index went up 10 per cent representing the growth in the domestic market cap (TSI), which closed the period at 10.39tri/-.

As activities in the market revamped so did the foreign investors’ participation in the market during the first six months of the year. Overall foreign investors’ participation dominated the bourse.

Total foreign participation in the equities was around 49bn/-which makes up about 65.41 per cent of all purchases on the bourse, subsequently, the selling from foreigners amounted to 46.76bn/-.

Local participation slightly contracted to 25.9bn/- purchase and 28bn/- selling equivalent to 34 per cent and 37 per cent, respectively.

The cross-listed stocks remained in the red for most of the first half-year with the reported sell-off of foreigners in the Nairobi Stock Exchange, the bourse, in general, remained bearish, as a result affecting the cross-listed companies on the DSE bourse.

The Jubilee Holdings (JHL) and East African Breweries (EABL) experienced the greatest decline, a 21 per cent drop from 6,450/- to 5,050/- and a 20.8 per cent drop from 3,360/- to 2,660/- per share respectively.

The rest of the counters; KCB and National Media Group (NMG) followed suit, dropping by 17 per cent and 10 per cent, respectively.

On the domestic counters, bank stocks outperformed the market greatly, with investors making double digits returns on the stocks just for six months.

The NMB was the top performer, making a 56 per cent capital gain, from 2,000/- per share at the beginning of the year to 3,120/- per share at end of June.

Two counters, DSE and CRDB also lined up as top performers both recording 54 per cent and 42 per cent capital gain for the period.

Furthermore, CRDB also doubled as the top mover for the period, accounting for about 30 per cent of all market activities for the period by generating 22.6bn/-turnover.

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