NAIROBI September 4- The Nairobi Stock Exchange (NSE) 20 Share Index has declined by 15 percent to hit a low last experienced at the end of February 2008, after the post election violence.
NSE Chief Executive Officer (CEO) Chris Mwebesa attributed the drop to high inflation rate and increased food and fuel prices.
August inflation in the country rose to 27.6 percent after falling since May, but analysts have expressed optimism that it would ease in a few months .Inflation rate since the beginning of the year had shot to a near 15-year high of 31.5 percent in May, then slumped as food prices fell.
Keen observers say that the recent three percent increase in electricity and fuel prices was the cause of the August rise.
Mwebesa noted that the Safaricom Initial Public Offer (IPO) also brought in more investors to the market who expected high returns, but the low allocation saw investors move to other securities (which are part of the index).
This created a supply overhang and consequently brought down the index.
“The market has been fairly volatile because since the end of February, we went up by about 15 percent, back to the levels attained at the close last year, but now we are back to where we were in February,” Mwebesa said.
He said that the market was bound to reach its bottom before bouncing back, gauging from the present valuations of institutional investors, which he said would however depend on the sentiments of the market.
Mwebesa cited the Bombay Stock Exchange, (which dropped by about 50 percent), as well as the New York and Nigerian Stock Exchanges as the conspicuous examples of the affected stock markets.
“There are quite a number of investors who may not be seeing inflation as a transitory issue and may be cashing in on some of the gains that they have made to hedge against inflation,” said Mwebesa.
The CEO made the remarks at an award ceremony for participants in a three-month virtual stock exchange competition for University students dubbed Smart Youth Investment, co-sponsored by Sterling Investment Bank, Bank of Africa and Capital FM.
Students from Nairobi University emerged winners carrying home Sh200,000 in the competition that drew over 3,000 participants who were exposed to trading activities at the stock market.