Business and Technology Reporter in Nairobi, Kenya
Nation Media Group
The current bear run in the East African bourses may continue for a while longer, as stock prices in the world’s developed markets this week soared to record highs, reflecting improving investor confidence in them, but to the detriment of smaller markets.
The Standard and Poor’s 500 (S&P500), which tracks the stock performance of the 500 largest companies listed on American exchanges, on Monday rose 27 percent year-on-year to hit its highest level in history, an indication of improving share prices of the tracked companies.
On the same day, the Nikkei Index — the Japanese equivalent of S&P500, tracking performance of the 225 top companies traded on the Tokyo Stock Exchange — jumped 42 percent to also hit a record high, even though the Japanese economy recently slumped into recession.
Other emerging and developed stockmarkets globally have also been roaring lately. For instance, both the Shanghai Stock Exchange Composite Index and the Euro Stoxx 50 Index, which track the performance of the top securities in China and Europe respectively, have remained in the green zone over the past month and are also just a few figures away from breaching their all-time highs.
But in East Africa, the stockmarkets have been plummeting over the past year, a situation which, according to experts, may now be compounded by the bull run in the more advanced markets, handing investors losses as share prices collapse. The Nairobi Securities Exchange (NSE), the region’s largest bourse, has been in the red for over a year now.
The NSE 20 share index, which tracks the performance of the 20 largest listed firms, is currently at a record low, after plunging 10 percent last year. The NSE All-Share Index (NASI), dropped by 28 percent in the same period, an indication that other share prices on the Nairobi bourse plummeted even further.
Data from Kenya’s Capital Markets Authority reveals that last year, foreign investors pulled out a total of Ksh21.3 billion ($149 million), as new purchases at the NSE consistently lagged behind the sales by foreign stockholders.
NSE’s struggles are not unique. The Uganda Securities Exchange (USE), Dar es Salaam Stock Exchange (DSE), and the Rwanda Stock Exchange, have also been plummeting on the back foreign investor flight over the past year.
USE’s All-Share Index is also currently at a record low, having plunged 25 percent year-on-year since March last year, according to data provided by the bourse, and all indications show the bear run could last.
The DSE has also seen a drop on its all-share index over the last year, currently at 7.5 percent less than it was a year ago, while RSE’s this week posted a marginal rise of 1.2 percent year-on-year.
The bear runs have seen the East African bourses’ market capitalisation - the total value of stocks on the markets – plunge to the lowest levels in over a decade. The NSE’s, for instance, is currently at Ksh1.5 trillion ($10.5 billion), the lowest since 2012 and a 27 percent drop since end 2022.
According to analysts, the current bear run in the regional markets, which are classified as frontier markets results from the high economic uncertainties, which are also driving the roaring of the more advanced markets.
“Investors tend to favour large-cap in the equities segment during cycles of heightened uncertainties as they are best positioned to withstand market uncertainty while maintaining decent earnings,” argues Wesley Manambo, a senior research associate at Nairobi-based Standard Investment Bank.
“This phenomenon is most profound in developed markets hence the large-cap-driven bull run [in the United States and Japan].”
He adds: “When investment instruments in developed markets offer a better value proposition, the opportunity costs (value of foregoing the best alternative) attached to frontier markets tend to rise, in turn propelling higher capital outflows as investors with exposure to these markets adjust their portfolios.”
This is an indication that as the developed and emerging markets keep roaring, the East African frontier bourses will keep losing investors, further driving down share prices and costing investors, at least in the foreseeable future.
