The daily traded equity turnover at the Nairobi Securities Exchange (NSE) fell by a third to its lowest level in four years due to reduced participation by local institutional investors.
Market data for 2016 compiled by Standard Investment Bank shows that investors traded on average Sh594 million daily, which was a drop of 32 per cent from the average daily trades of Sh858 million recorded in 2015.
It is also the lowest trading volume recorded since 2012, when the market was moving shares worth Sh350 million a day.
The bourse last year traded under bearish conditions, which had the effect of discouraging trading as investors sought higher returns elsewhere.
“Last year, the market witnessed lower participation from local corporate investors and this could be attributed to the fact that there was a shift from equities market to fixed income market as they scouted for more guaranteed returns. Thus, we could actually blame the institutions for the lower volumes in 2016,” said Kingdom Securities senior research analyst Mercyline Gatebi.
Stockbrokers are also bracing for leaner earnings from brokerage commissions for the year, with total market traded turnover slumping by 29.6 per cent to Sh147.2 billion from Sh209.2 billion in 2015.
The market intermediaries earn a maximum commission of 2.1 per cent from an equity trade, but in reality they have to settle for less than one per cent on average due to demand for discounts from institutional investors and competition for customers among themselves.
Even at the maximum of 2.1 per cent, they would still see their commissions drop to Sh3.09 billion from Sh4.39 billion in 2015.
Although the traded volumes dropped, foreign investors emerged net buyers in the market last year, with a net inflow of Sh9 billion. Most were taking up long-term positions on blue chip stocks, which at current prices are deemed undervalued.
The SIB analysis shows that Equity Bank and Safaricom attracted the highest net inflows for the year, at Sh4 billion and Sh3.9 billion respectively.
KenolKobil and BAT followed with net foreign inflows of Sh764 million and Sh762 million respectively.
On the outflow side, foreigners took out a net of Sh883.9 million on the KCB stock and Sh546.4 million from the Bamburi counter. Cooperative Bank also saw significant foreign investor selling with a net outflow of Sh409.6 million.
The initial trading session of the year on Tuesday was also marked by heavy foreign investor participation, where they accounted for 92 per cent of total market activity with a net outflow position of Sh5 million.
They are expected to lean more towards the sell side this year due to the higher interest rates in the US following the raising of the Federal Reserve rate in December, which is expected to go up again this year.
“Based on the possibility of other consequent Fed Rate hikes and Kenya being in an election year, foreign investors may stay away from injecting new capital into the market,” said Ms Gatebi.