NAIROBI, September 16 – Investors at the Nairobi Stock Exchange (NSE) have been advised to resist the urge to dump their shares in the ongoing slump at the bourse.
Faida Investment Managing Director Bob Karina told Capital Business Tuesday that investors should hold on to their shares until the market improves.
He explained that although there is a decline in the market, a majority of the listed companies were still fundamentally sound judging from the announcement of their good financial performance.
“You can sell (shares) for the companies which do not have a good future but some companies have announced good (financial) results and that is what should keep you going,” he suggested.
The stock market has in the last few months been bearish and experienced an over 15 percent drop, which has been attributed to rising inflation brought on by high food and fuel costs.
The market capitalisation has declined from a high of Sh1.25 trillion in June to the current Sh947 billion.
Many people who have sold their shares during this period have lost billions of shillings.
Karina stressed that people who took out loans to participate in the recently concluded Safaricom Initial Public Offers (IPOs), should look for money to pay for the credit but still hold on to their shares.
As a cardinal rule, however, he cautioned that in subsequent transactions, people should never borrow to invest in the stock market.
Karina also advised investors with money and who would want to take advantage of depressed share prices, not to put in lump sum amounts into the bourse and instead invest progressively.
Experts agree that the Kenyan market is a buyer’s market, where the prices are determined by them (buyers).
“If you have Sh1 million, we do not recommend that you put in the whole million today or tomorrow, you can divide it in say four or five portions then every other day you buy a portion of it (the market),” he said.
“No one will ever be sure how low or how down it will go,” the MD added.
The dumping of shares, he stated, had also contributed to the slump with people just giving brokers the orders to sell without realising that they are accelerating the fall.
This situation has been experienced across the board with many counters having a heavy supply side and low demand.
On Tuesday for example, the demand for Safaricom shares was at 1.5 million compared to a supply of 18 million.
“That makes the buyers hold the orders because they can see there are people fighting to sell,” stressed the expert.
At the same time, Karina said that the market in Kenya was not affected by the meltdown in the global arena.
He pointed out that there were times when local prices continue to rise even when there is a slump in the international markets and vice versa.
“We are not directly affected by what goes on out there,” he said.
The MD supported his argument by pointing out that the share prices for many international companies were heading south because the companies in question were recording massive losses or declining profit margins.
“The fall in the international market is genuine because the companies are doing poorly. In the local scene, majority of our companies such as Barclays, Equity and Kenya Commercial Bank have performed better than they did last year despite the post election violence,” he noted.
Karina however admitted that experts felt that with political stability and good performance by most firms, most (share) prices would go up and this would create demand. This, he said, did not happen due to the rising inflation.
He observed that inflation had affected people’s purchasing power and caused them to lose interest in the stock market.
“With inflation, it means that the same shilling you have is buying less than what it used to a few months ago and it’s the same with the fuel costs,” he emphasised.
He however predicted that the market would rise soon. The anticipated drop in fuel costs and the onset of short rains is likely to ease inflationary pressures, a development that is expected to have the multiple effect of reversing the depressing trend in the bourse.
“Once this happens, there will be some excitement which will translate into people going back to the stock market, and then prices will improves,” Karina forecasted.