NSE sheds Sh92bn in a day as Russia invades Ukraine

Capital Markets

NSE sheds Sh92bn in a day as Russia invades Ukraine


Nairobi Securities Exchange (NSE) on the trading floor at the Exchange building in Nairobi on August 26, 2020. PHOTO | SALATON NJAU | NMG

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Summary

  • The market capitalization closed at Sh2.453 trillion compared to Sh2.546 trillion on Wednesday, with Safaricom, East Africa Breweries Limited (EABL) and the big banks leading in shedding value in the wake of the sell-off.
  • The blue-chip stocks are a favorite of foreign investors who in recent days have been selling shares on the NSE, pushing the value of the stock market to a seven-month low.
  • A major risk event like the Russia-Ukraine war usually sees investors rushing back to bonds and the safest assets in what could hurt the flow of foreign investors to the NSE.

Investors at the Nairobi Securities Exchange (NSE) #ticker: NSE on Thursday lost Sh92 billion as global stocks plunged after President Vladimir Putin launched an invasion of Ukraine, making it the biggest single-day loss in over two years.

The market capitalization closed at Sh2.453 trillion compared to Sh2.546 trillion on Wednesday, with Safaricom #ticker: SCOM, East Africa Breweries Limited (EABL) #ticker: EABL and the big banks leading in shedding value in the wake of the sell -off.

The blue-chip stocks are a favorite of foreign investors who in recent days have been selling shares on the NSE, pushing the value of the stock market to a seven-month low.

The fall in share value was the steepest in a single trading day since March 2020, when the Covid-19 pandemic first hit Kenya.

“The flight away from the equities market is likely to be significant in the short run, particularly if the conflict is prolonged,” said Davis Gathinji, an analyst at Sterling Capital.

A major risk event like the Russia-Ukraine war usually sees investors rushing back to bonds and the safest assets in what could hurt the flow of foreign investors to the NSE given the foreigners account for over 55 percent of trading on the Nairobi stock market.

A broad offensive by Russian forces targeted military infrastructure across Ukraine as well as several airports.

The assault began hours before dawn and quickly spread across central and eastern Ukraine as Russian forces attacked from three sides.

President Putin warned of bloodshed unless Ukrainian forces laid down their arms.

The pain spread beyond stocks. Brent crude, the world benchmark, topped $ 100 a barrel for the first time since 2014 on its way to $ 105 per barrel.

This has the potential to drive Kenya’s pump prices upward and overwhelm the current State-backed subsidy that has kept pump prices unchanged for the fourth month in a row.

The conflict also sent wheat prices soaring, risking a further rise in the cost of bread and cakes on rising flour prices, which will make chapatis costly.

Russia and Ukraine are major sources of wheat imports for Kenya, which ships in 75 percent of its annual demand of 1.2 million metric tons of grain.

At the NSE, the sell-off of shares by foreign investors intensified yesterday in the flight from the equities market.

Foreigners made net sales of Sh195 million, up from Sh33 million on Wednesday when Russia made its first entry into Eastern Ukraine.

Safaricom, Equity #ticker: EQTY, EABL, KCB #ticker: KCB and Cooperative Bank #ticker: COOP shares — which account for over 80 percent of total NSE wealth — collectively cut market capitalization by Sh89.4 billion or 97.1 percent of the losses.

This underlines the dominance of the five counters on the Nairobi stock exchange, which has made it difficult for investors to measure the true performance of the NSE.

“We are already seeing a significant sell-off on Safaricom and while we do expect locals, particularly institutional investors, to step in at some point and take advantage of the attractive share prices the lower stock goes, there is a certain air of pessimism currently in the market, with investors adopting a wait-and-see approach, ”said Mr Githinji.

Globally, there was a flight from equities to Western benchmark bonds, the dollar, Swiss franc, Japanese yen and gold once Russia’s army rolled across the Ukrainian border in Europe’s most concerning conflict since the Second World War.

Other major African stock exchanges also recorded losses yesterday, with the Johannesburg Stock Exchange all-share index dropping by 3.7 percent, the Nigeria Stock Exchange by 0.1 percent and the Egypt Stock Exchange’s EGX100 index 7.3 percent.

Stock markets in the world’s financial centers also retreated sharply, with Tokyo’s Nikkei index down 1.8 percent, while London’s FTSE 100 was trading down 3.08 percent and New York’s S&P 500 2.2 percent down in the afternoon.

Western governments, including the US, the UK and the EU, are expected to hit Russia with tough sanctions in response to its invasion of Ukraine, which is expected to disrupt crucial oil supplies from Russia, the world’s third-largest producer.

These sanctions include being denied the chance to trade using the dollar, crippling its ability to trade with countries such as Kenya.

They have, however, ruled out sending troops to Ukraine to confront the Russians.

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