Only 61,000 (3%) of the 2.3 million equities accounts at the Central Depository and Settlement Corporation (CDSC) have participated in trading at the Nairobi Securities Exchange (NSE) over past two years, the Business Daily reports.
The other 97 % of equities accounts used for trading at the NSE have been inactive during the period revealing the lack of interest among retail investors who entered the market during the 2000s IPO boom.
Analysts attributed the reduced participation of retail investors largely to a reflection of the high-level speculation that dominates their investment decisions.
They remained muted after Safaricom IPO of 2008, which brought nearly one million new investors to market after the telecoms operators failed a repeat of the KenGen debut experience in 2006 when the energy firm’s shares doubled their offer value.
Safaricom’s share price remained below the IPO price for nearly five years.
CDSC chief executive officer Nkoregamba Mwebesa said that the percentage of active accounts recovered from a low as 1.2 percent last year to the current three percent following the campaign to encourage dormant account holders to return to the market.
“A lot of the accounts came in through the bull market IPOs we had between 2006 and 2009. Some people have never touched their accounts since then, and some may have even forgotten who their broker was…we’ve got accounts that are sitting with shares, and others with cash at the depository agent offices. As part of strategic initiatives, we thought that if we could increase that number we could see more throughput in the market in terms of turnover at the exchange. Our goal was to double the number of active accounts during the period of the strategy and we actually achieved that in the first six months.” CDSC chief executive officer Nkoregamba Mwebesa.
He added that the newly revived accounts generated 20 percent of the NSE’s trading activity in 2021, indicating the size of revenue market players are foregoing due to the inactivity of investors.
In 2019 the CDSC decided to freeze share accounts that had been inactive for a period of two years, barring them from transacting unless the owners applied to the corporation for reactivation, in a move to protect investors against fraud, particularly those accounts that held cash balances.
Upon freezing of an account, the CDSC then sent a notification to the account holders informing them of the declaration of dormancy, asking them to visit their stockbroker to reactivate their account.
A majority of the dormant account holders were introduced into the market through the oversubscribed KenGen and Safaricom IPOs of 2006 and 2008 respectively, which raised more than one million new investors between them.
The dormancy of major IPOs in the past decade has partly contributed to the reduced activity at the stock market, denying the NSE a pool of new investors.
The revelation of the high number of inactive accounts is, however, also indicative of the level at which local investors have sat out trading during the recent bear run at the NSE.
Read also; NSE Daily Equity Turnover rises 403.1% to KSh 654 Million.
