Kenyan stock prices at more than three-year lows may have further to fall with domestic investors favoring bonds and foreign buyers waiting for lower valuations, the head of the bourse said.
Shares on the Nairobi Securities Exchange have dropped 6.9 percent since Jan. 1, extending last year’s 8.5 percent drop, because of jitters among investors about elections scheduled for August. The yield on Kenya’s benchmark 10-year bond has fallen almost 200 basis points to 14.02 percent on Tuesday from a high of 16 percent in February, according to data compiled by Bloomberg.
“Because of issues around volatility in the markets, most pension schemes over the past two years have lost value in their equity holdings so they want to play a bit safer,” NSE Chief Executive Officer Geoffrey Odundo said in an interview Monday at his office in the capital. “Interest rates have historically given them a better performance so that is why they are willing to buy government paper.”
Kenya’s stock exchange is the world’s worst performer so far this year, with the decline dragging valuations to the weakest since 2009, when Bloomberg began compiling the data.
The recent decline may present a buying opportunity for investors, particularly “liquid stocks” including Safaricom Ltd., East Africa’s biggest mobile-phone company, and East African Breweries Ltd., the region’s largest brewer, and KCB Group, the No. 1 bank by assets, Exotix Partners said in an e-mailed note on Monday.
“We see it bottoming at some point,” Odundo said. “Foreigners are waiting for better prices and are picking stocks at fairly low prices and this has dragged the index downwards, especially given that when the stocks that really drive volume — which is the telcos and the banking sector — fall, they drag the index down,” Odundo said.
The NSE issued a profit warning last year when it said full-year earnings will drop at least 25 percent. Odundo said the warning was the result of “difficult” markets last year, while predicting a turnaround in 2017 as the exchange brings new products online.
“‘We are going to get derivatives; we are looking at new products around exchange-traded funds, global depository receipts,” he said. “A lot of focus around new product will create new feel around the stock market and make our markets more attractive to international investors given the kind of products we are bringing on board.”
The NSE said in October it’s evaluating “several” ETF applications and plans to introduce a derivatives market, without providing a timeframe.