NSE rebounds after first half of cheap stock race

Capital markets

NSE rebounds after first half of cheap stock race

Nairobi Securities Exchange (NSE) on the floor of the Exchange building in Nairobi on August 26, 2020. PHOTO | NJAU SALATON | NMG

The Nairobi Stock Exchange (NSE) rebounded from a dreadful first half of 2022 as easing US rate hike expectations and a rush to falling stocks fueled a rally in July.

The market capitalization rose by 259 billion shillings in July to 2.198 shillings, thanks to local investors who scooped up shares undervalued by foreigners who transferred capital to safe havens abroad.

The strong performance in July contrasts with the first six months of the year, when the flight of foreign investors saw the market lose 653 billion shillings of paper wealth.

Several stocks fell to 52-week lows, ushering in a buyers’ market where there were attractive entry prices offering good dividend yields and the potential for capital gains once the market corrected.

Shares of major blue chip outlets including Safaricom, Equity Group, KCB and East Africa Breweries Limited fueled the rally as local investors claw back cheap stocks that had slumped as foreign investors exited.

“Foreign investors are still seeing sharp outflows, which has provided a steady supply for local investors looking to enter the market, hence the rise,” said Melodie Ndanu, an analyst at Gengis Capital.

The market was weighed down by a reduced appetite for emerging markets after a spike in interest rates in developed markets like the United States, which are currently battling high inflation that has forced their central banks to adjust rates at the rise.

Data on Thursday showed the U.S. economy contracted for a second straight quarter, raising hopes that the worst inflationary cycle in four decades would ease and the Fed could ease its policy tightening.

“Investors are also betting that much of the negative [economic] news has been factored in that the Federal Reserve may become less aggressive in tightening monetary policy, and there is enthusiasm in equity markets for slower inflation and fewer rate hikes,” he said on Friday. a fund manager at the Financial Times.

Shares of Safaricom gained 20.28% during the month to reach Sh29.96 at the close of trading last Friday.

The telco suffered one of the worst routs in the market which saw it crash to 23.01 shillings in June and made the meter very attractive which has maintained profitability over the years.

EABL gained 22.24% to 155.25 shillings following the announcement that it will pay an additional 7.25 shillings per share or a total of 5.73 billion shillings in final dividends after more than doubling its net profit to 15.57 billion shillings in the year ended June

Equity share is up 22.24% while KCB is up 9.59%.

Analysts said with the upcoming election, the market will most likely err on the side of caution until the outcome is clear and the country can begin to address its macro challenges.

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