Ex-dividend pressures, foreign inflows and liquidity challenges in Kenyan markets

Kenya’s equity markets are experiencing pressure as the Nairobi All-Share Index dropped by 0.4 per cent, attributed to selloffs in major banks and ex-dividend adjustments. Despite a sharp decrease in trading volumes, there is a quiet return of foreign investors, indicating a shift in market sentiment. On the other hand, bond markets are exhibiting stability, with strong demand for long-duration government paper. The question arises whether this movement reflects a flight to safety or strategic re-entry at discounted valuations. Teddy Irungu, Research Analyst at AIB-Axys Africa, shared insights on these market dynamics. Irungu emphasized that the decline in the All-Share Index was largely influenced by ex-dividend adjustments, where investors exited positions to secure profits. He anticipates a short-lived pullback, with investors likely to reinvest in large-cap stocks now trading at more attractive prices. However, he cautioned that certain large-cap counters may face challenges in the near term. Foreign investors shifting to net buyers amidst a drop in turnover could be indications of both strategic bargain hunting and a temporary pause in capital flight. Global uncertainties have slightly eased, contributing to a more stable market environment. Tariff tensions between the US and China have shown signs of softening, impacting market dynamics. Despite recent losses in some banks such as Standard Chartered, linked to legal cases, the market is expected to recover lost ground post earnings announcements this month. The decreased trading activity, a result of cautious investor behavior, may reverse with upcoming Q1 earnings releases from the banking sector, renewing investor confidence. In the bond market, the interest in the 17-year Infrastructure Bond 2003 indicates investor willingness to extend duration exposure in anticipation of capital gains. This suggests softening credit risk associated with government bonds, with investors accepting lower-risk premiums. Looking ahead, expectations on large-cap fundamentals and upcoming earnings releases from companies like Safaricom are likely to influence market performance. Despite lingering caution, investors are positioning themselves in undervalued stocks, hinting at a potential market upturn. Overall, the market remains influenced by global economic trends, tariff dynamics, and investor sentiment, reflecting a delicate balance of risk and opportunity.