- In 2023, a significant investor sell-off led to a $15.5 million (KSh4.2 billion) decline in the Kenya stock market.
- During the review period, Safaricom’s market valuation declined, attributed in part to prolonged and price-agnostic portfolio outflows by foreign investors in favor of dollar-denominated assets.
- Utility Umeme Limited recorded the highest valuation gains throughout 2023, registering an impressive 115.6 percent return.
Nairobi Securities Exchange-listed firms, including Safaricom PLC, British American Tobacco (BAT), and Cooperative Bank, emerged among the top counters experiencing the highest investor sell-off in 2023, a new trading report reveals.
Over the past year, a consistent trend of investor flight led to the Nairobi Securities Exchange (NSE) witnessing a drop of $15.5 million (KSh4.2 billion) in the value of shares traded on the bourse
The 2024 outlook report by AIB-AXYS Africa Investment indicates that despite some firms, such as Safaricom, recording improvements in share prices towards the end of last year, it was insufficient to prevent the bourse from recording another year of downturn.
What triggered investor sell-off?
AIB-AXYS Africa Investment CEO Paul Mwai notes that trading activity on popular blue-chip counters declined in 2023 compared to 2022, largely due to a drop in foreign participation rates.
Safaricom, BAT, Co-op Bank, KenGen, and Bamburi Cement led in foreign net sales as investors abandoned the local market for more lucrative opportunities in foreign markets.
“The year 2023 proved to be one that many Kenyan investors would prefer to put behind them, characterized by a steep decline in the stock market and rising domestic interest rates that weighed down bond valuations, resulting in low portfolio returns,” stated Mwai in the 2024 outlook report.
In the review period, Safaricom’s market valuation declined, in part, due to prolonged and price-agnostic portfolio outflows by foreign investors in favor of dollar-denominated assets.
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Best performing sectors in Nairobi exchange
The banking sector emerged as the top contributor to increased foreign inflows at the NSE, securing six positions out of the top ten.
In 2023, bankers Equity Group Holdings, Absa Bank Kenya, Stanbic Holdings, KCB Group, and EABL stood out as the top foreign net buys in Kenya. They were followed by StanChart bank, insurer Jubilee Holdings, Uganda’s electricity distributor Umeme Limited, Kenya Re, and Rwanda’s cross-listed lender Bank of Kigali (BK) Group.
This trend persisted despite telecom shares emerging as the most traded at the Nairobi bourse.
The report highlights a significant decline in investor wealth at the NSE, halving since the bourse reached its all-time high valuation of $17.9 billion (KSh2.9 trillion) two years ago. This downturn is attributed to the consequences of foreign investor flight from the market.
Despite these challenges, some solace was found in overseas investments. A weakening shilling, coupled with improved returns on the global market, resulted in a 24.4 per cent gain in US dollar terms, offering better returns for those who opted for international diversification.
Foreign investor participation also experienced a decline, dropping from $951.6 million (KSh153.8 billion) in 2015 to $405.3 million (KSh65.5 billion) last year.
“However, we expect a looming reversal of sentiment as key central banks hint at lowering policy rates from H1 2024. If this happens sooner, we anticipate a tidal wave of foreign portfolio investments back into emerging and frontier market public equities,” added Mwai.
The top traded counters of 2023 included Safaricom PLC, East African Breweries, and Equity Group Holdings, with turnovers amounting to $216.6 million (KSh34.93 billion), $142.3 million (KSh22.55 billion), and $55.7 million (KSh9.44 billion), respectively.
The agriculture sector sustained its positive earnings momentum throughout 2023, propelled by improved weather conditions and government-backed incentives, such as fertilizer subsidies, that enhanced production quantities.
Depreciating Kenyan Shilling boosts exporters
Furthermore, the weakening of the Kenyan shilling boosted overall earnings for firms exporting to offshore markets.
The winners and losers in the capital gains dimension throughout 2023 were evident. Small-cap and medium-cap counters outperformed large-cap counters due to the ongoing pricing of fundamentals.
On the flip side, large-cap stock valuations broadly reflected the cyclical impact of varied macroeconomic shocks. Umeme Limited recorded the highest valuation gains throughout 2023, registering a 115.6 per cent return.
Kapchorua Tea and Kenya Orchards followed, posting returns of 89.8 per cent and 87.5 per cent, respectively.
Conversely, Unga Group recorded the worst valuation losses in 2023, declining by 47.3 per cent to Sh 16.85 per share.
“We noted that large-cap stocks such as KCB Group, Safaricom Plc, and East African Breweries suffered significant valuation losses amounting to 42.5 per cent, 42.4 per cent, and 31.9 per cent, respectively,” the report reads in part.
Among the winners in the dividends dimension in 2023, ironically, a Ugandan-cross listed energy firm – Umeme – emerged as the best counter in 2023 across the Kenyan Equities market, both in terms of capital gains and in dividend yields.
Energy producer KenGen Plc emerged second with a strong dividend yield of 14.9 per cent, while Williamson Tea Kenya secured the third position with a dividend yield of 14.4 per cent.
