Have you ever paid money into a company’s equity whose PE (price Earnings ratio) was fair per the industry’s standards, the balance sheet looked impressive and the cash flows demonstrated a very sound trend?  After buying, the stock price may have staggered or remained fixed for a long period before you decided to offload it for ‘tying up your funds’.  Immediately after the sale (which may have realized you less than 10 percent gain) or after breaking even, the share price soared more than 100 pecent higher and you were left questioning:  ‘Was I the bad omen to the shareholding profile?’ 

The recent announcement by CFC Bank (a local bank) of a possible merger is not what speculators would have anticipated.  News got to the public through a ‘Cautionary Announcement’ to the shareholders.  Not keen on the likely implications, a smart investor keyed in his sale order at Ksh. 900 (US$.12.67), which was six times higher than the previous closing price of Ksh. 131 (US$ 1.84).

For the few of us who go to the market, this was a fair game of demand and supply.  Fair play demands that human rules at times have to come to play and that is why our Nairobi Stock Exchange Chief had to intervene and call it an ‘error’ that was being worked on.  It would have been a sad tale for the buyer who would have had to stick with the shares purchased at Ksh.900, a price that may never be in the near future.  For the seller, that would have perhaps been time for him to take an early retirement.    

Announcements and rumors have become major influences to the short-term price rally that has been experienced in the recent past.  Each sector seems to have its share of this with the Finance and Investment Segment being the most affected.  While this poses a great risk to the few who don’t time the market, it always presents a great opportunity to make short-term gains. 

Take the recent case of Standard Chartered bank’s shares.  The stock recently hit a high of Ksh. 270 (US$. 3.8) before regressing back to Ksh. 214 (US$ 3.0).  Punters who had realized the likelihood of Standard Chartered posting good Q4 results cashed in on the fact that the bank raked a lot of money from the innovative products they had come up with in Q4 in a bid to segment their clients’ needs.  Kenya Commercial Bank (KCB) demonstrated good gains.  Unlike Standard Chartered, KCB’s earnings were steered by a rumor that the management was going to increase its dividend payout and retain less of its earnings.   

Towards the end of every quarter, banks are required by Central Bank of Kenya (the regulatory body) to post their Quarterly Earnings.  In anticipation for this, activity always heightens after the close of every quarter in preparation for good results.  Banks always end up gaining new ground as investors heighten activity towards announcement period. 

For partly government owned institutions, the excitement period is always around June and the companies involved are always marred by the same excitement too.  Among the companies influenced by government actions are the monopolist Kenya Power and Lighting Company (KPLC), Kenya Electricity Generating Company (KenGen), East Africa Portland Portland Cement (EAPC), and Industrial and Commercial Development Corporation Investments (ICDCI).  Any government action relating to any of these companies is likely to impact them either positively or negatively.   

A recent divestiture program by the government has seen Mumias Sugar Company (MSC) heavily losing from its highs of Ksh. 65 (US$. 0.96) to the current lows of Ksh. 47 (US$. 0.63). The share price is likely to be depressed further as the additional 91 million shares get offloaded raising the number of shares trading in the secondary market to 601 million.  The same trend is set to be repeated by KenGen that has been the major loser in the losing spree reported in most counters in the past two months.  The government is soon set to relinquish control of the firm. 

Currently, the market is grappling with the buzz over stock splits.  According to available info, the said splits are likely to affect all companies currently trading above a price of Ksh. 200 (US$.2.82).  The news affects counters as punters buy heavily in order to benefit from expected price gains.  The rally has in the past gripped East African Breweries, ICDCI, East Africa Cables and Kenol before their splits.  Currently, the buzz is high on KPLC, Jubilee Insurance Company Bamburi Cement and British American Tobacco (BAT).

One wonders whether the management is usually part of all the hype that companies experience during such periods.  From large corporations, management appraisal is mainly based on how a stock performs in the market.  Should this therefore translate to a large bonus being paid out to heads of corporations whose firms perform well even out of invalid claims? 

It is hard to justify what information is valid for market use.  What’s for sure however is that most markets in the world, however efficient, rely on existing technicalities to make decisions and not pure fundamentals.