Tough times loom for the bearish Nairobi Securities Exchange (NSE) as a cocktail of global and domestic factors collude to push the benchmark index below the 1,700 mark for the first time in 20 years, signalling muted activity and free fall of stock prices on the 68-year-old stockmarket.
The EastAfrican has learnt that the falling turnover on the NSE and the drop by the NSE-20 Share index to a low of 1,681.8 last week is largely a result of massive sell-off by foreign investors who are fleeing frontier and emerging markets in search of safer havens following a rise in interest rate in the US and news that Sri Lanka has defaulted on its debt obligations for the first time in its history.
The situation has been compounded by events in the local environment, including uncertainty over the forth coming general elections, weakening currency, dollar shortage, rising cost of living and the general apathy by retail investors.
The last time the benchmark index, which measures the performance of 20 blue-chip companies on the NSE, fell below the 1,700 mark was in 2002 when it hit 1,087 from 1,935 in 2003.
“The perception of the currency weakening compounds the problem,” Paul Mwai, NSE’s vice chairman, told The EastAfrican last week.
The IMF opened rescue talks with Egypt and Tunisia, both big importers of wheat from Russia and Ukraine, and with Pakistan, which has imposed power cuts because of the high cost of imported energy. Turkey is battling 70 percent inflation but has so far avoided the need for a bailout.
The scarcity of US dollars in the Kenyan economy has adversely impacted trading by foreign investors who control more than 50 percent of the daily trading activities on the stockmarket.
NSE has historically recorded foreign investor participation in the range of 60 percent to 70 percent between 2019 and the first half of 2021.
But their activity at the bourse fell to 54.88 percent in the three months to March this year from 57.73 percent in the three months to December 2021, according to data from Kenya’s Capital Markets Authority.
Cytonn Investments attributes the price declines by most stocks — particularly large cap stocks — on the exchange as a result of the increased sell-offs.
In May, the Federal Reserve moved to tame soaring inflation in the US by announcing the sharpest rise in interest rates in over 20 years.
The Fed’s benchmark rate was raised by 0.5 percentage points to a target rate range of between 0.75 percent and one percent, the largest increase since 2000.
It followed a 0.25 percentage point increase in interest rate in March this year.