The Capital Markets Authority (CMA) has formed a team to address foreign investors’ dominance at the Nairobi Securities Exchange (NSE) while it is also keen to address the concentration of only 5 top companies, which are the prime movers of volumes at the bourse.
“The market has relied heavily on foreign investors, and this situation is of concern. We think that this may be addressed through sizeable domestic scale local citizen-focused Collective Investment Schemes. There is a works team currently in force to address this,” Luke Ombara, CMA Director, Regulatory Policy and Strategy, told The Kenyan Wallstreet.
He added that another initiative is to facilitate access by retail investors to the bourse through their mobile phones.
“We are further encouraging local institutions such as pension schemes, SACCOs and Chamas to participate at the bourse,” said Ombara.
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CMA Quarterly Data
The latest data from the CMA shows that foreign investor participation in the month ended July and August 2020 was at 60.62% and 65.14%, respectively. This is compared to the previous Quarter’s average of 64.59% recorded before the COVID-19 pandemic struck.
September 2020 registered the highest foreign investor turnover of 75.55% as compared to NSE’s total turnover. This is the highest recorded rate since April 2019, which had a proportion amounting to 75.80%.
The net outflows and discounted prices of active Counters at the NSE experienced since the onset of the coronavirus pandemic globally has created an opportunity for a local investor to take up positions in the market with a long-term view of benefiting from expected future capital gains and dividends as well as a reduction in the market concentration risk.
According to the Q3, 2020 Capital Markets Soundness Report, the top five companies by market capitalization have accounted for three quarters for three-quarters of total market capitalization, at 75.61%, 76.14%, 77.03% in July, August, and September, respectively.
Safaricom leads the five dominant firms at the NSE, followed by East Africa Breweries Limited (EABL), as well as lenders KCB Group, Equity Bank, and Co-op Bank, which controlled some KSh 1.66Trillion out of the KSh 2.2 Trillion investors wealth at the NSE, as at the end of Q2, 2020.
The telco and banking sectors remain dominant by size in the market. Safaricom Plc, accounting for 55.79% of the NSE’s total market capitalization as of September 18, 2020.
While the Nairobi bourse has introduced several new products, the bourse has not seen any new listings over the past five years.
Investors appear yet to recover from the collapse of several stock brokerage firms in yesteryear, as well as the crushing down of issuers of corporate bonds.
“The CMA operates an investor compensation fund that cushions investors who may suffer pecuniary loss in the event of failure of a broker within the market. It is from this fund that investors in the Ngenye Kariuki cases were paid. However, the CMA only compensates where funds are invested in listed and regulated companies to whom it has a supervisory mandate,” said Anne A Nalo, Product Development Officer at the CMA.
The Corporate Bonds Market has seen little activity in recent months following the collapse of Nakumatt Supermarkets, Imperial, and Chase Bank, leaving bondholders with empty pockets.
“Key measures have been put in place to mitigate against past failings, which we acknowledge. You may have noticed a resumption of activity in the corporate bond market. We are doing more due diligence and even emphasizing on corporate governance, credit rating and credit enhancement for issuers,” said Ombara.
He said riskier issues are being offered to more sophisticated investors.
Further, Ombara disclosed that CMA is working with strategic partners such as Kenya Deposit Insurance Corporation to address settlement default risks and segregation of client assets held under custodial arrangements.