Panic sells by foreign investors of up to Sh1.4 billion triggered a market crash on Friday with huge sales at Safaricom, Equity and East Africa Breweries Limited. This caused a dip in share prices across several counters.
Trading at the Nairobi Securities Exchange went off for 30 minutes within minutes of the Supreme Court ruling nullifying August 8 presidential election which saw foreign investors push block sales that triggered a circuit breaker at the bourse.
“From 55.3 per cent, foreign investor participation rose to 64.5 per cent – highest market participation in over 10 sessions. They remained net sellers with net outflows rising 376 per cent to Sh814 million ($7.9m) – highest single session net outflow in 2017,” Standard Investment Bank said in a brief to investors.
According to NSE, trading rules require the bourse to shut down the floor if an index dips by more than 5 per cent drastically. “The NSE 20 share index declined by more than 5 per cent triggering a shut down between 12.30 and 1.00 pm but we are now back on,” a spokesperson at the NSE said.
The index however recovered to close the day’s trading at 3,887.28 points down from Thursday close of 40027.12 points, a 3.47 per cent dip despite earlier reports that put the crash at 9 per cent.
The last time the NSE was shut down was a decade ago after the 2007 post-election chaos that saw as many as 1,400 people died in a span of 59 days, while 600,000 people were displaced from their homes.
The shilling also slipped to 103.2 against the dollar according to Bloomberg data just minutes after the Supreme Court ruling and stayed there for the better part of the day’s trading.
This is a turnaround for the Kenyan currency which has in the last one month strengthened to exchange at 102.7 against the green back following a peaceful election.
The yields on Kenya’s foreign debt climbed the most in almost two months according to Bloomberg with the $2 billion of Eurobonds due June 2024 soaring 21 basis points, the most since July 6, to 6.23 percent. Analysts however said that this was a knee-jerk reaction and that investors who were overreacting would eventually look beyond the shock ruling to the fundamentals.
“This should be taken as a sign of a mature democracy and strong institutions that should be good news at the markets,” said Jibran Qureishi, Regional Economist East Africa at Stanbic Bank.
Mr Qureishi said that the shilling jitters were not necessarily driven by huge dollar demands but jitters in the interbank market after the ruling. Global risk consultancy, Control Risk, however warned that due to the ruling, government policy and decision making will be affected posing a risk to investments.
“The political uncertainty in the coming weeks could slow down business significantly with the knock-on negative effect on foreign investor confidence,” Control Risks Country lead Daniel Heal said.
Mr Heal also said that investors will also be forced to price in the possibility of a Raila Odinga win and implications of his left-leaning policies that include higher social spending and a controversial review of land policies.
The firm however believes that President Uhuru Kenyatta has an edge over his rival.