REPORT

NSE market volatility highest ever in Q1 2020

In Summary
  • According to the Q1 2020 CMA Soundness Report, the NSE 20 Share and NASI Index volatility for the quarter ended March 2020 averaged at 0.65 per cent and 0.83 per cent respectively compared to 0.47  per cent and 0.53 per cent respectively recorded in Q4 2019 with March 2020 indicating the highest volatility during the quarter for both indices.
  • Following the announcement of Kenya’s first coronavirus case, the markets witnessed panic sales leading to the high volatility levels.
Acting Capital Markets Authority CEO Wyckliffe Shamiah.
Acting Capital Markets Authority CEO Wyckliffe Shamiah.
Image: COURTESY

Coronavirus pandemic market shocks greatly affected the Nairobi Securities Exchange (NSE) in the first quarter of 2020 leading to the highest NSE 20 Share and NASI Index volatility.

The level of volatility of the market was relatively high compared to comparative preceding quarters as the country recorded its first coronavirus case in March.

According to the 2020 quarter one, Capital Markets Authority  Soundness Report, the NSE 20 Share and NASI Index volatility for the January- March period averaged 0.65 per cent and 0.83 per cent respectively compared to 0.47  per cent and 0.53 per cent respectively recorded in Q4 2019 with March 2020 indicating the highest volatility during the quarter for both indices.

 
 

Following the announcement of Kenya’s first Covid-19 case, the markets witnessed panic sales leading to high volatility levels. This forced the NSE to halt trading in line with the NSE Equity Trading Rules.

"As we grapple with the effects of Covid-19, the Authority is keen to ensure that the capital markets remain functional and accessible during this challenging period, through collaborative efforts with industry stakeholders," said Wycliffe Shamiah, Chief Executive, CMA.

A turnover ratio of 1.98 per cent was recorded in the quarter, compared to 1.84 per cent and 1.37 per cent in Q4 2019 and Q3 2019 respectively indicating increased trading frequencies in Q1 2020.

Increased trading activities witnessed by the rise in turnover levels during the quarter are highly attributed to the increased foreign sales following the first incidence of the Covid-19 case in Kenya.

Average foreign investor participation during the quarter averaged 61.14 per cent, a 1.82 per cent decrease from 62.96 per cent recorded in Q4.2019.

The Kenyan market continues to be highly driven by foreign participation as they seek higher yields in alternative assets within emerging markets.

Net foreign portfolio levels during the quarter amounted to a total outflow of Sh844 million, compared to a total inflow of Sh262million in net foreign inflows during Q3 2019.

According to CMA this was expected with the pandemic spreading into Kenya and other sub-Saharan African countries but the Authority in conjunction with industry players continues to market Kenya as a safe haven for investments for foreigners in the long term.

 Further, purchase of 20 per cent of Centum shares by a major shareholder during the quarter has sent a positive signal to both foreign and domestic players on the confidence levels in the Kenyan securities markets despite Covid-19.

During the quarter,the top five companies by market capitalisation accounted for an average of 74.14 per cent , the highest in the last four quarters, further increasing the exposure risk that the Kenyan market faces.

"Market concentration remains a key risk within the Kenyan Capital Markets landscape, therefore, we are working with various market players in identifying potential issuers within  the Kenyan market as  a way of increasing diversity within the market,"read the report