Kenyans losing the appetite for stocks

NAIROBI – Investing in the stock market has become an unattractive venture for most Kenyans as inflation continues to rise and prices of various stocks tumble.

Many Kenyans, who had interest in investing in stocks, especially after various successful Initial Public Offers (IPOs) by various companies in the East African nation, have lost faith in the stock market as a potential investment place.

They would rather put their money in other ventures, like businesses or save in bank, than buy shares, whose prices have hit rock bottom.  

In the past six months, according to the Nairobi Stock Exchange (NSE), stock prices have declined significantly despite healthy turnover levels. Shares of various companies currently trade below their IPO prices.

These include Kengen, a power generation company, whose shares currently trade at 0.10 U.S. dollars and Safaricom, a telecommunication firm, whose shares trade at 0.04 dollars.    The prices of the shares are below what they were sold during IPOs few years ago, which were 0.12 and 0.06 dollars respectively.

Analysts attribute the fall of stock prices to the weakening of the Kenyan shilling (which has started to stabilize), escalating fuel prices, food inflation caused by drought and a rise in local liquidity occasioned by heavy bank lending to the private sector.  More importantly, they note that the trial of Kenya’s political leaders at Hague by the International Criminal Court for the 2007 post-election violence crimes and an increased political uncertainly in Kenya, as the country heads to the general election next year have contributed to the fall.

“I do not know if I will invest in the stock market again anytime soon,” says David Ngeno, a software technologist working in the capital Nairobi. “I have lost a lot of money that I invested,” he adds.

    Three years ago, when Kenyans were encouraged by the government to buy stocks through IPOs and prices of most shares were performing well, Ngeno invested 1,612 dollars at the stock market.   “About half of the money was a loan while the rest was from my savings. I was convinced by a friend, who had substantially gained by trading at the market to buy the shares,” he says.

 He recounts that after visiting a stock brokerage firm, he bought shares of four different companies, one through an IPO.  “It was when Kenya was recovering from the post-election violence. Prices of shares were still down but they had started recovering. I was optimistic that I would make some money from my investment but it has not happened,” he says.

    Ngeno observes since his investment, prices of shares have fallen tremendously.    “One of the shares I bought then was trading at 0.5 dollars and it had showed an upward movement for several weeks. But it tumbled thereafter, currently it is trading at 0.16 dollars,” he notes.

 If he sells all his shares now at the prices they are trading in, Ngeno says he will lose three quarters of the money he invested.    “I have decided to wait and see if the prices will increase even at the level I bought them so that I can sell the shares, but I do not think it will happen soon. I consider this the worst investment I have ever made in my life,” he says.

    His predicament is shared by Justus Bwire, a banker in Nairobi, and thousands of other Kenyans. Bwire says he invested lots of money in Safaricom shares but he cannot sell them since he will make huge losses.   “I was very positive during the company’s IPO in 2008 where the shares were going for 0.05 dollars. After getting 500 shares, which every individual investor was allocated, I went and bought 5, 000 shares more, but going by the company’s share prices currently, I do not believe it was a wise investment,” he says.

He observes that stocks have fallen down because most companies trading at the market have reached their peak and are not experiencing further growth.   “With no new companies that have real growth options listing regularly, the stock exchange market will continue to perform poorly,” he says.

    The banker adds Kenyans lose of interest in the stock market was evident during the British-American insurance IPO in August.   “For the first time, an IPO was under-subscribed. Only 60 percent of the shares floated in the IPO were bought. Reports showed that foreign investors also shunned the stock,” he notes.

British-American, which is a holding company for two insurance firms and an asset manager, was seeking to raise 62.9 million dollars from the sale of 650 million shares to fund expansion in East Africa.   Before British-American, all the previous IPOs in Kenya had been over-subscribed. A good example is Safaricom, the biggest IPO ever in Africa. It was over-subscribed by 532 percent by both local and international investors.

    However, since then, the shares have yet to bring substantial returns to investors. But it is not only falling prices of shares that are driving Kenyans out of the stock market, low dividends paid by most companies to share holders have also discouraged people.   “Companies make billions of shillings profits yet they give investors worthless dividends. If you get a cheque of 0.21 dollars, how do you present it to a bank?” wonders Sylvia Chege, a resident of Nairobi.

    The collapse of most stock brokerage firms in the country occasioning people to lose their investments has also instilled fear in potential investors.   To trade at the NSE, one needs to open a Central Depository and Settlement Corporation (CDSC) account with a stock broker through which shares will be held electronically.

    The stock broker is the custodian of the account. Some firms have sold shares of investors without authority leading to massive losses.  Despite the challenges, investment experts note that the NSE is currently a buyers’ market presenting investors with massive investment opportunities. (Xinhua)