Nairobi bourse in campaign to scale up trading by wooing back retail investors
Tuesday February 22 2022
Nairobi Securities Exchange Chief Executive Officer Geoffrey Odundo at the trading floor on February 8, 2022. The bourse is seeking the return of retail investors whose accounts have been dormant the past two years. PHOTO | DIANA NGILA
Nairobi Securities Exchange (NSE) has stepped up a campaign to bring back retail investors after a trail of exits following trading malpractices, loss of funds in failed stockbrokerage firms and botched investments in initial public offerings, which left the bourse with dormant accounts.
Only 61,000 of the 2.03 million share accounts at the Central Depository Settlement Corporation (CDSC) have participated in trading over the past two years, representing a three percent share. This means that 97 percent of equities accounts have been dormant.
Retail investors are individuals or non-professional investors who buy and sell securities through brokerage firms. Their absence from the market has adversely impacted trading volumes and reduced revenues for the self-listed bourse and for stockbrokerage firms that rely heavily on transaction incomes.
It has also left trading in the hands of institutional investors — who mostly buy shares for long term returns — and foreign investors who are highly sensitive to the economic and political environment of the country.
Institutional trade
NSE chief executive Geoffrey Odundo told The EastAfrican that the majority of the dormant accounts belong to retail investors, some of whom made only the initial investments while others have cashed out.
“What is driving volumes in Kenya is largely institutional trade and that is why we take the challenge that we need to do more to activate the retail investors,” said Mr Odundo
“These retail investors take profits in IPOs and stay out. So I think the challenge is how we get them back. Even if there is no IPO we need to get them (to) understand that there are still very good valuations in the market where they can come in and trade,” he added.
The Nairobi bourse and the CDSC have been sending targeted text messages to individual investors encouraging them to either buy, sell or lend their securities to keep their accounts active.
In 2021 the NSE also formed a partnership with mobile operator Safaricom to allow retail investors buy shares using Bonga points. The Bonga point scheme gives Safaricom customers one point for every Ksh10 ($0.08) spent.
The NSE also reduced transaction fees by five percent for equity investors that adopt the same day trading model being pushed by regulators.
The Day-Trading model in equity transactions launched in November is part of efforts to entice investors and new companies to the market, which has been weighed down by investor apathy, lack of new listings and unscrupulous dealers preying on unsuspecting investors through insider trading.
The Safaricom IPO in 2008 pulled in over 742,000 new investors into the market, some who took bank loans and sold personal properties to buy into the 10 billion share offer, but this backfired after the share price fell below the IPO price of Ksh 5 ($0.04) per share, causing many individual investors to flee the market.
Since then the number of share accounts on the bourse stagnated at 1.5 million.
In 2020 there were 1.51 million CDS accounts, 1.13 million of which were active.
According to data from the Capital Markets Authority (CMA) average foreign investor participation on the NSE declined to 51 percent between July and September 2021 from 58 percent in the second quarter before increasing again to 58 percent in the October-December period .
“In the face of the Covid-19 pandemic, foreign investor outflows continue to pose a serious risk for the Kenyan capital markets,” CMA’s Capital Markets Soundness report for the fourth quarter said.
“This is further exasperated by the slow economic recovery witnessed in the domestic economy as institutions and households seek stability following the effects of the pandemic.”
Foreign outflows
According to the report foreign outflows stood at $44.24 million between October-December attributed to profit taking on select counters.
“Through its market deepening initiatives coupled with strategic partnerships with institutions offering investment solutions for retail investors, the authority is targeting investor education aimed at growing the stock of shares held by domestic investors. This will minimise the effects of external shocks on the market as foreign investor holdings change in the market,” CMA said in the report.
The campaigns could be bearing fruit as 12,673 share accounts were activated during the three months to September 2021 compared to 6,214 in the second quarter (April-June).