When the Nairobi Stock Exchange experienced the Bear Run, early this year, some investors panicked, sold their shares and ran to pyramid schemes which were offering quick returns. However, with time, the markets picked up and even the IPOs that came in the 2nd quarter of the year were oversubscribed. Purity Njeru of The African Executive talks to Charles Kanjoya, Managing Director Stockspin Agencies, a leading Stock Broking Agency in Kenya that offers investment advisory services on shares and securities, on the market trends.
Purity: Early this year the NSE experienced the Bear Run. What would you attribute this to?
Kanjoya: First there was the usual “Back to School” spending which mainly contributes to a slump in share prices in January. Retail investors sell off their shares during this time to cater for school expenses after heavy spending over Christmas. The effect of this is however not so prolonged and in most cases it does not spill over to the second month of the year. However, this year things were a bit different and we saw the bear run go on until April when the market started recouping some of the losses made.
Another major contributor to the bear run was the pyramid schemes in the country at the time. The pyramid schemes came up with interesting packages with some even giving six times the value of ones investment in four to five week’s time. This led to retail investors eager to make quick money sell off their shares, highly contributing to excess supply with no matching demand and hence a drop in prices. Kenyans channeled millions of shillings to pyramid schemes part of it raised from selling of shares at the NSE at throw away prices in a bid to make quick returns. This was especially so bearing in mind that shares would not give them this kind of returns in such a short time.
One of the Stockbrokers namely Francis Thuo & Partners Limited which went down in February with over one hundred million Kenya shillings owed to investors was suspended. This had a negative impact on the market and most retail investors who were still new in the market opted either to pull out or invest in other ‘safe’ investment vehicles.
Purity: How is the performance currently?
Kanjoya: The NSE 20 share Index has gone up by about 10 percent from around 4,800 points in March to around 5,317 points in July 2007. This can be attributed mainly to resurgence in prices of the key constituent counters at the NSE.
In addition, most of the pyramid schemes that were diverting a lot of money from the NSE eventually came down as earlier warned. Retail investors therefore started streaming back to the NSE on realizing that investing in the pyramid schemes was not safe.
The recent IPOs of Access Kenya Ltd and Kenya Reinsurance Corporation Ltd which came in the second quarter of the year have also lured retail investors back to the stock market. There was an over subscription in the Access Kenya IPO and Kenya Reinsurance IPO is also said to be oversubscribed by about 500 percent with retail investors likely to get only 15 percent, the insurance companies 60 percent while the qualified institutional investors 20 percent of the shares applied for. Most of the refunds from Access Kenya IPO were reinvested back in the market hence creating demand for shares and thus pushing prices up.
Most companies have also been posting improved end of year and half year results hence attracting interest from investors who are keen to benefit from the dividends or the capital gains expected from such announcements.
The NSE 20 share index has shed of about 133 points during the month of August. This can mainly be termed as a speculative move by some of the investors who had bought shares at a low price in anticipation of the companies posting good results which would in turn see a surge in the prices, selling of in order to consolidate their profits. Most shares gained marginally in the period prior to the announcements hence prompting speculators to cash in on the gains.
The downward trend is not expected to continue as demand increases to buy shares at these low prices. Investors are also expecting their refund cheques from the Kenya Reinsurance IPO by 24th August. We are hoping that most of this money is reinvested in the market.
Purity: Kenyan professionals want the CMA to control the operations of NSE. What implications will this have on the stock markets as well as investors?
Kanjoya: The CMA which acts as the market regulatory body has been blamed in the past for not taking action where it’s required to do so. This is especially after Francis Thuo & Partners stockbrokers was suspended amid allegations of the broker trading in investors shares and issuing of bouncing cheques to their clients. It is thought that the CMA was aware of the brokers operations prior to the suspension and had it acted before, the losses arising from the suspension could have been minimized or avoided all together. The move is also expected to build the much needed investor confidence which was eroded considerably after the suspension of Francis Thuo & Partners.
The CMA is also been asked to regulate the Stock agents in the market who currently work under the supervision of Stockbrokers. The country has seen the emergence of numerous Stock agents, some who have been swindling money from investors in the pretext of investing for them. This has tainted the image of Stock agents in general and dealt a major blow on serious Stock agents who have been carrying out their business genuinely.
It is therefore a welcome move to have the CMA tighten their grip on the overall running of the capital markets in the country as a way of encouraging both foreign and local investors.
Purity: A report by the Public Investment Committee recommended that the Safaricom IPO be postponed until the real identity of a shadow company, Mobitelea, that is touted to have a shareholding in Safaricom is established. What effects will this have?
Kanjoya: The Safaricom IPO has been highly anticipated. Many investors are eager to partly own the most profitable company in Eastern Africa. However, with the wrangles over the shareholding in Safaricom unresolved, the listing of the company may take longer than expected. This is not likely to change the investors’ attitude towards the anticipated Safaricom IPO. Investors are well aware of the government’s intention to offload part of its share holding in the company, with part of what is expected to be raised having been factored in this year’s budget. It is therefore expected that it is just a matter of time before the issue is resolved and investors will be able to participate in the offer. The government is determined to continue with the process of selecting its lead transaction advisors and Legal advisors as it proceeds with the planned sale of Safaricom shares through an IPO expected in October.
Investors are still confident that they will be able to participate in the IPO before the end of the government year in June 2008 despite the anticipated delays as several hurdles emerge with even politicians threatening to challenge the offer in court. The only uncertainty among most investors is; if the IPO does not go through this year (being an election year), will the new government proceed with the IPO?
At the stock market, the announcement has had little or no effect. This is mainly because no specific date has been set for the IPO and so investors do not know when to position themselves for the Safaricom IPO.
Purity: There have been talks on Equity bank manipulating its share price through insider trading. Is this affecting investors?
Kanjoya: Over the past one month a lot of negative information about Equity Bank has been circulating through emails and the press. This saw the bank share price go down by around 11 percent from a price of Ksh. 130 to a price of Ksh 116. This was amid the company posting improved half year results which saw the company’s half year pre-tax profit grow by around 100 percent from around Ksh 500 Million to Ksh 1 billion compared to the same time last year. There have been no fundamentals so far to back these claims and this has seen the share recoup some of the losses made in the previous weeks with the share closing at Ksh 126 as of 20th August 2007.