BAT Kenya, East Africa Breweries Limited (EABL) and Safaricom led five stocks whose increase in investor wealth at the Nairobi Securities Exchange (NSE) since the start of the year surpassed the remaining 50 companies.
The five stocks recorded a combined gain of Sh334 billion since January 1, representing 107.7 per cent of the Sh310 billion appreciation of all shares at the NSE.
This is exposing the distortion of the bourse’s performance by the blue-chip stocks, which is making it difficult for investors to gauge the performance of the NSE.
The NSE seems to be on a bull run and fully recovered from the effects of Covid-19, as investors bank on a rollout of coronavirus vaccines to keep the global economic recovery on track.
But a closer review of the market reveals that a few stocks have dominated the rally, with 12 stocks including Equity Bank, KCB Group and Nation Media Group recording double-digit growth since the year started.
Analysts reckon that investors have focused on firms that look set to weather economic shocks and with a tradition of paying dividends.
NSE chief executive Geoffrey Odundo said the gains are supported by strong fundamentals of firms such as Safaricom and banks as well as Kenya’s increased weighting on the Morgan Stanley Capital International (MSCI) emerging markets index.
The MSCI has become one of the guides on how foreign investors allocate their resources in emerging countries like Kenya.
Kenya’s weight in the index increased to 9.49 per cent from about 8.2 per cent, meaning foreign investors can allocate more money for NSE investments.
“Our weighting improved so they are happy to improve their holding in key stocks such as banks and telcos. It is generally an appreciation of the resilient performance of our companies and regional expansion of firms such as Equity and now Safaricom,” said Mr Odundo.
“Safaricom and some of the banking stocks are part of the composite index and that becomes a natural pick for foreigner’s portfolio. This explains why they continue doing better.”
But the Nairobi bourse is dimmed by the rising dominance of top five stocks that now account for 80.2 per cent of the entire market value of Sh2.42 trillion, up from 65 per cent three years ago.
The Capital Markets Authority (CMA) has flagged the dominance of five companies as a big risk, with the performance of their shares dictating whether the market goes up or down on any given day.
Mr Odundo says foreigners are slowly widening their investments to include mid-tier stocks, arguing their appetite for Safaricom and top banks is informed by the high liquidity, good dividend yield and price appreciation
“We see them begin to look for some mid-tier stocks. We have seen counters such as I&M, DTB, Sanlam and Jubilee begin to show some good level of activity. This could partly address concentration risk,” said Mr Odundo.
Cigarette manufacturer BAT Kenya is the biggest gainer this year at the Nairobi bourse, recording a return of 29.6 per cent after its share closed trading at Sh437 a piece yesterday, adding Sh10.7 billion to investors wealth
The EABL share rose 20.1 per cent to Sh185.2 in the period under review while Safaricom gained 19.3 per cent to Sh40.85.
The telco, on account of its much bigger number of issued shares, recorded the biggest absolute gain in market capitalisation at Sh264.4 billion, accounting for 85.6 per cent of increase in investor wealth at the NSE this year.
Safaricom’s share rally has been linked to the recent announcement of its entry into Ethiopia’s underserved telecoms market and dividend payout.
The firm on May 13 declared a final dividend of Sh0.92 per share, bringing its total payout for the period to Sh1.37 per piece.
The brewer posted a three per cent drop in net sales for its first half ended December as sales were hit by the closure of bars in the campaigns to check the Covid-19 spread. Post-tax profit plunged by a third.
Dividends are a factor in the BAT gains. The cigarettes firm has maintained generous dividend policies for decades that has seen it pay nearly all its net earnings to shareholders.
The firm defied the effects of Covid-19 to raise full dividend payout by more than a third after profits for the year to December jumped 42 per cent.
The cigarette maker announced Thursday that its profit after-tax climbed to Sh5.52 billion, rebounding from a 4.9 per cent drop to Sh3.89 billion in 2019.
Profit rebounds of Equity and KCB have upped investor interest on the lenders, gaining 15.5 per cent and 11 per cent respectively.
Equity has added Sh21.32 billion to its investors wealth since the start of the year while KCB is up Sh13.49 billion.
Safaricom alone is worth more than all the other listed firms combined, with its valuation of Sh1.636 trillion accounting for 61.8 per cent of the NSE’s market capitalisation.
One of the factors behind the dominance of the five firms is the drought in big ticket listings in recent years.
The firms are also liquid stocks, offering investors an opportunity to enter and exit the counters with ease, analysts say.
Delisting of firms like KenolKobil and erosion in the value of hitherto blue-chip stocks like Kenya Airways and Kenya Power have seen the five firms cement the stranglehold.
Three of the dominant firms — Safaricom, Equity and Co-operative Bank — came into the market during the IPO boom years of 2005 to 2009.
The CMA now says that it needs fresh listings of high-value firms to correct the market imbalance.