A buoyant Nairobi Securities Exchange (NSE) defied subdued national and global economies to become the third best performing in the world, driven by share price gains since the beginning of the year.

 

The market’s all-share index, NSE ASI, rose by more than a fifth in the first half of the year, making the Nairobi bourse the third best performing stock market worldwide after the Venezuela and Egypt exchanges, according to Bloomberg – a global markets data service.

 

At the close of business on Thursday, the NSE 20 Share index had risen by 15.75 per cent to 3,709.84 points since the beginning of the year.

 

The FTSE 15 and FTSE 25 indices rose 16 per cent to close at 105.34 and 108.13 points respectively compared to the NSE ASI’s 18.33 per cent rise to 80.50 points, pointing to better tidings for investors who put their money in the Nairobi bourse.

 

READ: Foreign demand lifts FTSE NSE 15-share index by 18 per cent

 

Market analysts say the share price gains are linked to the huge dividends that the companies have declared and expectations of positive performance by the listed firms as inflation and interest rates drop.

 

The Nairobi bourse has also attracted increased investments from international funds looking for high returns in Africa away from imperilled global markets and in response to a stabilising Kenyan currency.

 

READ: Low share prices lift NSE as foreign investors flock in

 

“The fact that inflation and interest rates have been falling signals that there might be a shift of funds to equities,” said Samuel Gichohi, a senior research analyst at NIC Securities, adding that despite the tough economic climate, listed companies have paid good dividends.

 

After dropping consistently between January and May, interest rates on Treasury bills this month hit an upward trend attracting investors back to government debt.

 

Yields on three-month, 182-day and one-year Treasury bills peaked at 20.799, 20.914 and 21.961 per cent in January respectively, after rising consistently through most of last year before setting on a descent.

 

“What is happening in Europe and other Western countries has made Kenya attractive especially for funds looking for growth stocks,” said Joshua Njiru, the general manager at Madison Asset Managers.

 

“They are obviously looking to where there is potential and that is in Africa.”

 

Fund managers, particularly those with large portfolios, sometimes buy shares in a particular index according to how they are weighted in the index to show their performance.

 

This means that such investors who may be trying to mimic the performance of Kenyan indices have seen their portfolios gain as much.

 

There are others who choose to buy specific shares so long as they have been included in the indices particularly if the index is available on international platforms such as the FTSE 15 and FTSE 25 which were launched at the NSE last year.

 

Mr Njiru said that international funds may be buying particular shares which are included in some particular Kenyan indices thus creating a demand that drives up the price.

 

“Remember that FTSE Indices were launched last year and I suspect there are funds out there that are buying the underlying stocks,” he said adding that investing to mimic the performance of indices could be the next thing for Kenyan investors as the markets develop.

 

Kenya’s NSE ASI, which has been the third best performing worldwide according to Bloomberg, contains all shares that are on the Main Investments Market Segment or Alternative Investment Market Segments.

 

The top five constituent shares of the FTSE 15 and FTSE 25 are East African Breweries (EABL), Kenya Commercial Bank (KCB) and Equity Bank which have gained more than 20 per cent since the year began and Barclays and Safaricom which have some of the highest dividend yields at the Nairobi bourse.

 

EABL, KCB and Equity Bank were up 29.65, 36.5 and 29.57 per cent respectively as at the close of business on Thursday.

 

Uchumi Supermarkets, which earlier this year replaced CMC Motors on the NSE 20 Share Index had risen by 107.79 per cent to close at Sh16 on Thursday although its highest point this year has been above Sh19.

 

Standard Chartered Bank,Pan African Insurance, KenolKobil and Athi River Mining on Thursday closed at Sh200, Sh33.25, Sh14.30 and Sh200 meaning that their prices are up by 25, 60.24, 43.72 and 26.58 per cent up respectively from their closing price at the end of last year. 

 

Peter Mwangi, chief executive officer at the NSE earlier this month told Business Daily that going forward market activity will be driven by the direction of interest rates, inflation and how fast the country transits to the new political dispensation under the new constitution.

 

He said that foreign investor sentiment will also be influenced by the direction of the eurozone economies.

 

Source : businessdailyafrica.com