SOUNDNESS REPORT

Bear run at NSE as top five firms rise dominance to 71.8%

In Summary

• Safaricom Plc accounted for half of the total market capitalization, which dropped by 3.9 per cent to Sh2.19 trillion compared to Sh2.28 trillion the previous quarter.

An investor looks at the digital board at the Nairobi Stock Exchange(NSE)/FILE
An investor looks at the digital board at the Nairobi Stock Exchange(NSE)/FILE

Top five blue-chip stocks maintained dominance at the Nairobi Securities Exchange (NSE), exposing the bourse’s risk vulnerability in case of turbulence on one of those counters.  

According to the Capital Market Soundness Report released Friday, Safaricom Plc, Equity Bank, East Africa Breweries Limited, KCB and Co-operative Bank controlled 71.83 per cent of market capitalization in quarter three.

This is the highest control of NSE by the five companies in the past four quarters, an increase compared to 70 per cent control of the total value in quarter two.

In the first quarter, the five companies made up 67.5 percent market capitalisation while in the last quarter of 2018 they comprised 65.8 percent of the market. Between July and September 2018, the five firms made up 68 percent of the market value.

Safaricom Plc accounted for half of the total market capitalization, which dropped by 3.9 per cent to Sh2.19 trillion compared to Sh2.28 trillion the previous quarter.

The telco had Sh1.13 trillion in total value, accounting for 50.6 per cent of total investors’ wealth at the Nairobi bourse, a factor that is largely attributable to the bear run that has precipitated a sharp drop of investors’ wealth in other listed firms.

‘’The Authority has been actively promoting market deepening (product development, innovation, and uptake deepening, through diversification), market diversification, as a way of addressing this challenge,’’ CMA report said.

This year, NSE has unveiled several programmes aimed at wooing companies in a bid to end a prolonged listing dry spell.

The bourse has witnessed only 10 listings in the past decade, despite introducing Growth Enterprise Market Segment (Gems) with lesser terms and conditions to attract SMEs.

The market has been without an Initial Public Offer (IPO) since October 2015, when the Stanlib Fahari I-Reit hit the market, while there have only been five listings by introduction since 2014.

 
 

Last year, NSE introduced Ibuka Programme, incubation and acceleration to help address the listing drought at the bourse.

Ibuka seeks to unlock the potential of small and medium-sized companies and scale up their business.

Kenya continues to witness a decline in the major share indices, now spanning five years, largely as a result of a mix of macro-economic, socio-political; as well as institutional challenges such as governance, uptake, and financial literacy

Apart from narrowing market capitalization, equity turnover for the quarter dropped to Sh30.66 billion from Sh32.90 billion in Q2; indicating a 6.8 per cent decrease.

Volume traded decreased over the period by 24.05 per cent to 1.06 billion shares compared to 1.396. billion in Q2. 2019.

Other composite indicators such as the NSE All-Share and NSE 20-Shares index similarly recorded decreases of 2.77 per cent and 7.65 per cent, closing the quarter at 145.46 points and 2431.97 points respectively.

Activities in the bond market also dropped by 8.07 per cent during the quarter under review. The market recorded a bond turnover of Sh185.4 billion compared to Sh201.7 billion in the previous quarter.