The Nairobi Securities Exchange is officially the world’s worst performing stock market and the Chief Executive, Geoffrey Odundo expects the plummet to continue well into the better part of 2017, a situation that has been worsened by the looming general election to be held in August.
“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. Interest rates have historically given them a better performance so that is why they are willing to purchase government paper,” Odundo said in an interview with Bloomberg.
The local securities market is not only the world’s worst performer in 2017, but its valuations are also at its weakest in 8 years and Mr. Odundo expects the stocks to bottom out at some point with plans to bring new products on board underway.
There has never been a more justifiable moment for recent calls aimed at diversifying the exchange market by introduction of derivatives than now since it is the overreliance on traditional stocks in the telecom and banking industry indexes that is contributing to the poor performances.
“We see it bottoming at some point. Foreigners are waiting for better prices and are picking stocks at relatively low prices, which has dragged the index downwards. Currently we are focusing on new products aiming to create a new feel around the stock market with the aim of heightening the allure of the local market to the foreign investors,” he adds.
In reference to data compiled by Bloomberg, shares on the Nairobi Securities Exchange have dropped 6.9 percent since the beginning of the year, continuing from last year’s decline of 8.5 percent. The yield on Kenya’s benchmark 10 year bond has fallen almost 200 basis points to 14.50 percent from a high of 16 percent .
Experts however predict that the recent decline may present a buying opportunity for investors particularly in the liquid stocks example Safaricom., East Africa’s largest telecommunication company, EABL., the region’s largest brewery company, and KCB, the number 1 bank in asset base.
The NSE, in a statement delivered in October last year said it was evaluating several ETF applications and plans to introduce a derivatives market, without providing a time frame.