Investor wealth in the Nairobi Securities Exchange (NSE) has been cut in half since reaching its record high valuation of Sh2.9 trillion two years ago, mainly due to foreign investors pulling out of the market.
On August 24, 2021, the NSE hit an all-time high valuation of Sh2.94 trillion, fueled by Safaricom’s share price rallying to Sh44.95. However, Safaricom’s share price has dropped significantly since then to Sh15.95, leading to a market decline.
Since its peak, the market has experienced paper losses of Sh1.38 trillion, leaving investors with a total worth of Sh1.56 trillion. The decline is concerning for new investors and has impacted institutional investors, including pension funds and insurers.
Foreign investors have exited the market, attracted by higher interest rates in developed markets. This concentration of foreign influence has left the NSE vulnerable to external factors such as global capital flight.
Notably, the top five companies by valuation on the NSE—Safaricom, Equity Group, EABL, KCB, and Co-operative Bank—accounted for 80% of the market’s total value two years ago, but that has dropped to 67.8% due to falling share prices.
Safaricom’s valuation has fallen by Sh1.17 trillion, contributing to 85% of the overall paper losses. Bank stocks have also suffered, with KCB, Equity Group, and Co-operative Bank leading the decline.
Other sectors like investments, energy, construction, and services have also seen valuation drops, discouraging demand from investors. Agriculture stocks, however, have shown gains.
The decline in the stock market is likely to continue due to rate hikes in developed economies and concerns about inflation. The weakening shilling and concerns about dollar availability have also contributed to the decline in foreign investments in the market.
Opinion: The sharp decline in investor wealth at the Nairobi Securities Exchange reflects the volatility and sensitivity of emerging markets to global economic conditions. The concentration of market influence in a few key stocks leaves the market vulnerable to external factors, highlighting the need for diversification strategies and improved risk management. To attract new investors and regain stability, the NSE should focus on transparency, regulatory measures, and initiatives that promote a broader range of investment options.
This article was published by (marketnewsng.).