Investors at the Nairobi Securities Exchange (NSE) have seen the wiping out of an excess of Ksh.91 billion in just two days as participants registered renewed fear on global volatility.
The highest sell-offs from the market were registered on Tuesday as dominant foreign investors retreated from the domestic securities market to see the pair of the NSE 20 and 25 indexes contract at a record sharp 51.5 and 40.35 points respectively.
On Wednesday, the NSE 20 index and the all-share index (NASI) traded at their lowest levels since October 2019 with the two larger indexes losing a further 22.86 and 80 points respectively.
The notable sell-offs have been seen largely in large capped stocks including Equity, Absa, Bamburi and Safaricom with the latter losing 5.21 percent of its share price value on Wednesday to close the day at Ksh.28.20.
The renewed jitters by the market participants were triggered mainly by Sunday’s admission by China on the potential for further cuts to global growth from the ongoing coronavirus outbreak.
News from the admission resulted in massive sell-offs off the world’s major bourses with the impact of changing investor sentiments impacting market participation in emerging economies such as Kenya in the aftermath.
“There exists panic globally on the potential impact of the virus on the global economy. The With Kenya at the epicentre of foreign direct investment (FDI) and capital movement in this region we can see why the sharp selloffs are happening,” said Sterling Capital Head of Research Renaldo D’Souza.
Valuations at the NSE have nevertheless been on a downward trend in the year to date with the NSE 20 index for instance shedding off a total of 222 points by the end of day’s trading on Tuesday.
Part of the correction in prices have been driven by profit taking activity by investors who have been keen to lock in profits from the recent price rally at the end of 2019.
On the other hand, a global economic slowdown for the year had already been projected with trade frictions and geopolitical tensions causing the downward adjustments to growth.
As such, Cytonn Investment Equities Analyst Felix Otieno says the majority of investors have opted out of investments in company stocks to favour safe bets in fixed government income as illustrated by the overly subscribed treasury bills issue in recent weeks.
“The trickle down from global markets volatility has seen investors adjusting their portfolios by moving back to fixed income,” he said.
The changing tone by global investors to stocks in emerging markets is further seen from the New York Listed emerging markets index-The Morgan Stanley Capital International (MSCI) which also traded at its lowest level since October on Tuesday.
Foreign investors have remained the principal participants in the domestic securities market and held a 63 percent turnover hold at the end of 2019 according to market data from the Capital Markets Authority (CMA).
According to ABC Capital Global Research Analyst Johnson Nderi, the weaker investor sentiment for continental markets has further been exacerbated by fiscal and debt distress risks which have forced their hand in the flight to risk attitudes by investors.
“Some of the vulnerabilities presented to investors have included Forex (FX) exposures from the expectation of serious currency devaluations,” he said.
On the contrary, the Kenyan shilling has remained well sheltered from the ongoing volatilities to retain a narrow trading band supported closely by the Central Bank of Kenya (CBK) open market operations (OMOs)
The Kenyan shilling traded at Ksh.101.13 against the US dollar on Tuesday with the local unit showing strength against incoming end month importer demands.