Investor wealth at Nairobi Securities Exchange (NSE) on Monday plunged to a six-year low after signals of a rate hike in the US prompted foreign investors to sell off blue chip stocks of Safaricom, East Africa Breweries Limited (EABL) and banks.
Market capitalisation—the value of stocks at the Nairobi bourse—dipped to Sh1.79 trillion, the lowest since March 2017.
The NSE has shed Sh135 billion since last Wednesday, with Safaricom, EABL, Equity and KCB Group accounting for 98 percent of the loss, just a day after the US Federal Reserve revealed it could increase the size of its interest rate hikes at its next meeting March 21-22.
This reflects a sharp change in the economic outlook since the Fed’s most recent policy meeting in early February and raised the possibility that the US banking regulator will increase its benchmark rate by a half-percentage point.
Smaller markets like the NSE have taken hits from the hikes because investors, particularly foreigners, get attracted to the western bonds and equities that are viewed as safe havens in times of global uncertainty.
Over the past year, the US central bank has raised its key rate, which affects many consumer and business loans, eight times.
The sell-off at the NSE has defied a Sh23.4 billion Safaricom interim dividend, which was announced on February 28 and closes on Wednesday, and the promise of outsized shareholder payouts by bankers who are set to announce record profits in the coming days.
“Last week, when the chair of the Fed made the comments, this triggered foreign investors towards selling. Since Safaricom is the most foreign-traded counter in our market it has suffered the most followed by Equity Group because of what foreign investors are seeing in terms of the dollar [supply] and the fact that the US rates are expected to go up further,” said Lisa Kimathi, an analyst at Standard Investment Bank (SIB).
“It has nothing to do with the fundamentals of the counters themselves, but is about the heightened global macroeconomic risk.”
Fed Chair Jerome Powell told a US Senate panel on September 7 that the Fed will increase the size of its interest rate hikes if evidence continues to point to a robust economy and persistently high inflation.
Safaricom accounted for the bulk of the NSE losses at Sh118 billion, underlining its status as the most exposed stock to foreign investor trading at the bourse.
Equity Group, EABL, KCB and Co-operative Bank, the other members of the top five stocks at the bourse, shed Sh5.6 billion, Sh5.9 billion, Sh3 billion and Sh1.5 billion respectively since March 8.
Safaricom’s share price has since last Wednesday fallen to Sh19.60, its lowest since May 2017, from Sh22.55 while Equity Group’s share price has fallen by Sh1.50 to Sh42.90 in the period.
The two stocks are the most popular with foreign traders, owing to their ample liquidity and stable fundamentals.
Effectively, the top five counters have accounted for 98 percent of wealth losses at the bourse since last Wednesday, highlighting their oversized influence on the fortunes of the market.
The remaining 59 listed stocks have together accounted for just Sh848 million worth of investor wealth losses in the period, indicating that the latest slide is entirely down to the foreigner selling after the US regulator remarks.
Over the past year, emerging and frontier equity markets have struggled to compete with the draw of the US market, which has been offering investors higher rates on bonds with an added advantage of safety against the economic uncertainty that has gripped the global economy.
This has seen stable stocks such as Safaricom, which had weathered the Covid-19 economic hardships, take a deep hit.
The global headwinds have seen the market largely buck the trend of higher dividends that are expected from banks and other blue-chip firms following record profits in the 2022 financial year.
Foreign investors have also been concerned about the increasing difficulty in accessing dollars in the Kenyan forex market, which makes it difficult for them to repatriate their sale proceeds and dividends offshore.
Last week, Stanbic Bank set the stage for higher payouts by announcing a 40 percent increase in its distribution to Sh12.60 per share, following a jump in net earnings to a record Sh9.06 billion last year from Sh7.21 billion posted in 2021.
Safaricom and EABL are also paying interim dividends of Sh0.58 and Sh3.75 a share respectively, while BAT Kenya’s books are still open for a final dividend of Sh52 per share.
Their selling activity immediately after the Fed signalled higher rates is also indicative of these fears about dollar availability, where they don’t want to be caught short in the market should they wish to move out down the road to take advantage of the potentially higher US rates.