Majority of Kenyan investors who had initially subscribed for the KenGen IPO ended up disappointed because they had bought into the company expecting to share the monopolist’s good fortunes- among which was Kshs. 2 billion in annual earnings. Later, it turned out that majority of the subscribers were to receive refunds of over 50 percent of their initial subscription. The post IPO share price however brought back the excitement as many make a gigantic 300 percent profit on sale of the shares.

With time, the KenGen share price has stabilized. The stock market seems to have a lot of goodies in store for the thirsting investors. Among these is the recently concluded SCANAD IPO whose 60 million shares were anticipated to attract more institutional than individual investing.  Its critics warned that the share price may not attract much attention but going by the numbers; SCANAD is also oversubscribed!

This confirms how much the craving for shares has amplified in the recent past.  People neither care about the cost of a bag of maize nor the direction the real estate hype is heading.  Atwoli’s wrath on the tea picking machines may disappoint the politician but doesn’t scare the average investor.  To them, the 20 Share Index tells much of what business news should be all about.

The race is still on as we head for the floatation of Equity shares, the government owned Kenya-Re, part of the listed Mumias Sugar Company (MSC), Eveready Batteries and Sadolin Paints among others.

According o the latest Central Bank of Kenya Weekly bulletin, the weekly turnover stood at Kshs.1.5 billion while market capitalization was at Kshs.618.8 billion.  This is almost equivalent to 50 percent of our GDP. Investor confidence had almost died when Uchumi, which seemed to be on its recovery path, was suspended from trading at the NSE. But as is typical with any investment, you can either gain or lose. Investors slowly picked up the pieces and got on track, perhaps with more fervor to take market shocks and risks more squarely. Even the blue chip stocks that are mostly eschewed by investors recorded improved performance and have ended up being the main market movers.

A few decades ago, it was typical for many urban folks to acquire land in the countryside using long earned money. This land would either go down to a huge construction with little value or agricultural activity. These activities were both time consuming, as they required a break from the daily routine to offer supervision. That is now a thing of the past. People have shifted the channels through which they made personal investments.  Screening the modern investor is a clear revelation of this changing phenomenon.  Investors seem to have found the share business more promising and less time involving thus increased market activity at the NSE.

Other than shy away from investing after the suspension of Uchumi, investors emerged stronger and ready to invest in a systemic way that would limit related losses. Investors are now interested in knowing the core businesses of the 47 listed companies. 

Except for the inefficiencies that have been witnessed by price appreciation of stocks with negative EPS and P/E ratios, efficiency is creeping into the market.  A look at two companies is a clear demonstration of this phenomenon.

In March 2006, news had it that Transcentury Group was to buy 24.9 percent stake in the largest mortgage finance company, Housing Finance Corporation of Kenya (HFCK).  The Transcentury Group was at the time all the rage for the turn around of East Africa Cables.  Any analyst would have anticipated this to offer some vibrancy that was lacking in the company’s share performance. It however took more than a week to get the public’s excitement about the news. By the time the greater part of investors came to learn of this, the share price had moved from Kshs.14.00 to Kshs.23 and was headed to Kshs.30. After a period of price appreciation to Kshs.32.50, the deal by Transcentury to buy into HFCK went sour on a Sunday evening.  The following day, HFCK was on an importunate end as everyone was willing to sell at market price. 

Recently however, news had it that the KPLC-KenGen power deal was hitting a snag after the latter failed to renew a special tariff.  Failure to do this would have meant that the power supplier, KPLC pays more for electricity.  A day after the news hit the airwaves, demand for the KPLC shares dropped drastically and in three days, the share price lost 12.5 percent.  The news about the overpricing of the monopoly power supplier’s shares, KenGen, had a similar effect which saw the share price lose Kshs.1.50 (4 percent) on the day when the report appeared in the local dailies.

These two examples explain how the investors have become market savvy driven by the increasing appetite for shares and diversion from other economically viable activities.

One reason why the stock market is becoming a preferred investment destination is because it requires a lower input than most businesses and returns are also higher.  Agriculture used to be the major economic driver recording over 13 percent contribution to our GDP.  With the ensuing losses in the coffee and tea sectors, the drought situation, and trade unionism, it may not offer much to the investor who wants to do proper business.  The effect has already been felt by tea companies that have had negative cash flows in the recent past.

With all the misfortunes of start-ups and other businesses, doesn’t the stock market offer much more?  Most investment clubs that have been started up in the past one year have done so not just with the intention of investment, but investing in the stock market.  This trend is unlikely to reverse owing to the fact that the stock market still offers the best avenue for making good returns.  Indeed, some listed companies in Kenya have yielded a return of over 70 percent in the current year as shown below: 

For small starters willing to go long term, the stock market could be the best entry point.  The Finance Minister’s reduction in taxes for companies that list in the NSE offers a honeymoon for companies that had plans for listing.  Consequently, it offers great prospects for small investors who look for entry points in IPOs that are often fairly priced and offer good capital gains. Many have realized that you do not need to save for a lifetime to shop for a good counter to invest in. It starts by buying into one company every month through a small savings plan, unlike a typical business.  In the former, you do not need auditors, accountants, consultants, business planners or an MBA to run - just you and your eye for money.