The Nairobi Securities Exchange (NSE) experienced relatively low volatility in Q3 compared to the previous quarter, attributable to sustained investor interest in select large-cap stocks notably in the telecommunication, banking, manufacturing, and allied sectors.
There was also increased investor interest in alternatives especially fixed income segments.
NSE 20-Share Index volatility
According to The Capital Markets Soundness Report (CMSR), Vol 20, Q3 2021, covering the period between July-September 2021, the NSE 20-Share index volatility dropped marginally to 0.31% in the quarter ending September 2021, compared to the 0.34% recorded in the previous quarter, while that of the NSE 25 Share Index declined from 0.49% to 0.41%.
This report notes that foreign investors’ contribution to equities turnover at the NSE has been on a decline as local investors continue to actively ramp up their positions following exits by the former.
During the period under review, foreign investors’ contribution to the value of shares traded reduced to 51.5% compared to the 58.73% registered in June 2021. The reduced foreign investor activity could be attributed to profit-taking on select counters. Generally, the bourse has consistently experienced a declining net foreign outflow for all the quarters under review.
The report said this trend is likely to continue as Kenya heads into the 2022 General Elections, scheduled for August next year. The quarter however witnessed a reduction in market liquidity with an equities turnover ratio 1.1% compared to 1.41% in the preceding quarter.
103.94% Increase in Investor Accounts
Key market infrastructure housed at Central Depository & Settlement Corporation (CDSC) and NSE remained robust during the period under review. A total of 12,673 CDS accounts were activated during the quarter, a 103.94 per cent increase compared to 6,214 in June 2021 as CDSC rolled out an aggressive account reactivation campaign.
This comes on the backdrop of the entire industry’s intensified investor education and awareness amongst the investing public as well as increased adoption of technology. It is expected that with the increased active accounts, the market will witness increased activities which will translate to improvement in the market liquidity levels.
The Authority remained vigilant in protecting investors by undertaking several regulatory actions to ensure market soundness and safety.
“The rebasing of Kenya’s economy will be key in strategic planning within the capital markets given the new data on current economic activities that make up the Gross Domestic Product (GDP),” said Wyckliffe Shamiah, CMA Chief Executive Officer said in the review.
He underscored the need for enhanced partnerships and stakeholder collaboration to further deepen the market. He pointed out the Memorandum of Understanding between CMA and Kenya Private Sector Alliance (KEPSA) to support the uptake of capital market products, deal sealed between UK and Kenya to position Nairobi as Africa’s financial hub, Safaricom’s partnership with NSE to enable customers to invest using ‘ Bonga Points’ as some of the initiatives undertaken during the period under review, to develop the market.
In its outlook, CMA warns that heightened political activities within the political class as the country gears for 2022 General Elections may portend negative investor sentiment and adoption of a cautious wait and see approach which may hamper investor interest in capital markets.
“We are closely monitoring the impact of political developments in this pre-election year on the domestic capital markets,” said Luke Ombara, CMA Director, Policy and Market Development.
He added that the 20th edition of the Capital Markets Report (CMSR) themed, ” Capital Markets Resurgence Hinged on Sustained Economic Recovery” aptly reflects the positive impact the economic rebound will have in steady capital markets activities resurgence.
The report warns that a slow re-opening of the economy could further derail economic recovery slowing down capital markets recovery.
The rollout liquidity enhancement initiatives such as market making, securities lending and borrowing, short selling and intra-day trading could substantially restore vibrancy in the Capital Markets.
The report says the Authority’s regulatory sandbox could nurture FinTechs with transformative impact for Kenya. The enhanced vaccination program and re-opening of the economy will serve to support steady economic recovery on which the capital markets development thrives.
This Quarterly Assessment by CMA, is aimed at keeping the public abreast with up to date information on market stability, deepening and development by simplifying industry performance through Capital Markets Stability Indicators.