Equities market growth to slow

September 30, 2010

, NAIROBI, Kenya, Sep 30 – The equities market will in the last quarter of this year grow at a slower pace with many stocks expected to experience a slight market correction.

Stanbic Investment Management Services Regional Managing Director James Muratha said on Thursday that the growth would only be marginal at between two to three percent due to the fact that the second half of the year is a post-earnings period when prices are erratic.

"You will see marginal growth and maybe stagnation just because of the weighting of some of the main companies on the stock exchange but we shouldn\’t expect significant growth like we saw in the first half of the year," he said pointing to the impressive rally that was recorded in the first half of the year.

The first six months saw a very strong performance of the equities market in Kenya with the recovery pegged at about 25 percent which was driven by rising confidence levels in the economy which in turn increased investor activity.

The recovery at the Nairobi Stock Exchange (NSE) was particularly witnessed in the first quarter of the year where for instance, the value traded was 183 percent above what was traded in 2009 making the Kenyan bourse the best performing in Africa.

During the period, the NSE 20 Share Index stood at 4,072.93 points as at the end of March compared to 3,261.17 points that was registered at the beginning of January while market capitalisation went up 17 percent to Sh983.1billion.

Up until the beginning of this year, equities had in the last two years taken a hit as risk-averse investors fled to perceived safety grounds due to the shocks that were experienced in the market.

This situation saw government bonds dominate the market although the trend is now changing with the shift being towards the equities market as investors seek good returns.

"If you look at the performance in the bond market right now, the yields are extremely low right now. It’s around two percent in the 182 (day) T-bill so for an investor who\’s looking at good return you don\’t have too much choice other than look for instruments that will give you higher returns," Mr Muratha said after his firm launched a Stanbic Equity Fund.

The timing was right for the unveiling of the collective investment scheme, he argued since the market prices were low which provided for a perfect avenue for reaping good returns.

The fund has an entry level of Sh100,000 with a provision of a minimum additional investment Sh20,000 that will be invested in a wide variety of equity investments designed to protect against inflation.

"Investing in collective investment scheme is considered a sound financial move by most investors. Pooling enable investors to reduce transactional costs involved in buying and selling of securities and gives investors the ability to negotiate for better returns than they would get if investing individually," the manager added.

Despite this attractiveness however, the uptake of unit trusts in the market is still low with the aggregate value of all unit trust funds in the country quoted at Sh20 billion.

This is less than two percent of the market capitalization at the NSE, but Mr Muratha expressed confidence that the figure will rise as more investors appreciate the importance and benefits that these tools portend.


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