MARKETS

NSE profit fall 82% on Brexit, slow economy

Investors lost Sh90 billion in paper wealth during the period

In Summary
  • Brexit uncertainty has impacted on foreign investor sentiments as they remain sceptical of frontier markets
  • NSE remains positive on the second half of the year counting on reduction of interest rates by the Federal Reserve Bank and stable macro-economic conditions
NSE chief executive Geoffrey Odundo monitors the daily tradings at the NSE headquarters.
NSE chief executive Geoffrey Odundo monitors the daily tradings at the NSE headquarters.
Image: ENOS TECHE

The Nairobi Securities Exchange (NSE) has posted an 81.9 per cent drop in its half-year profit in the wake of a challenging business environment that saw investors lose Sh90 billion during the period.

NSE (the company)'s profit after tax declined to Sh24 million as compared to Sh134 million recorded over the same period in 2018.

This came as revenues dropped by 18.1 per cent closing the period at Sh288.7 million compared to Sh352.4 million similar period last year.

 
 

The self-listed company, which also manages the Nairobi bourse, has pegged the drop in revenues on a 28 per cent drop in equity turnover which declined from Sh108.5 billion to Sh78.1 this year.

This, in turn, led to a reduction in equity trading levies by 28 per cent, CEO Geoffrey Odundo said on Tuesday, from Sh259.9 million last year to Sh187.5 million this year.

“The decline in the equity turnover was as a result of low domestic demand which saw an increase in asset allocation towards the fixed income assets,” Odundo told investors.

Share of profit in associate decreased by 66 per cent from Sh14.7 million last year to Sh5 million for the same period this year, due to the decline in trading performance and increased system costs.

Other comprehensive loss of Sh10.7 million for the period under review relates to an unrealised loss on the fair value of a quoted investment acquired in 2019.

The overall poor performance has however been blamed on a tough local business environment amid a credit crunch, Brexit uncertainty and the US-China trade wars which have affected investment patterns globally.

Brexit uncertainty has significantly impacted on investor sentiments, slowing down investments at the bourse as foreign investors remain sceptical of frontier markets.

 
 

“The macro-economic environment in Kenya during the first half of 2019 continued to face challenges characterized by erratic weather conditions, low private sector credit growth, reduced liquidity and increased inflation,” Odundo said.

According to NSE, global economic growth remained subdued in the first half of 2019 on account of strained US-China trade relations.

During the period, the World Bank revised downwards its 2019 economic growth forecast by 0.3 percentage points to 2.6 per cent, from the projected 2.9 per cent as of January 2019.

During the first half, investors lost Sh90 billion in paper wealth as market capitalisation edged down 3.4 per cent to Sh2.27 trillion, compared to Sh2.36 billion over the same period last year.

Equity turnover during the period under review stood at Sh32.89 billion compared to Sh45.25 billion same period last year, signalling a 27.31 per cent drop.

All three indices at NSE dropped during the period under review, with the benchmark index NSE-20 hitting a 10- year low, trading below 2,600 points starting end of June.

Odundo has attributed the bear run to global microeconomics, especially interests rate volatility in the US and its trade wars with China.

The bond market at NSE has however remained resilient with turnover edging up 16 per cent in half one to settle at Sh360 billion.

On the contrary, a slump in share prices has seen almost 20 counters trade below Sh5, a trend that has equally affected the top five counters that account for 65 per cent of trading value thus Safaricom, East Africa Breweries Limited, Equity Bank, KCB and BAT.

This, however, provides a fertile environment for new buyers according to investment experts, in anticipation of a bullish market.


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