First all, I wanted to disapprove the myth about Safaricom disproportionately pushing down the index (note here we are talking about the NSE 20 Share Index which is quoted daily). The table has the evidence. Please ignore the effect of volumes as the formula used to compile the index does.
Safcom has had some effect but so have other shares. Where its effect is real is in putting the integrity of the NSE further into question.
The other reasons posited have been:
- Inflation: Reduced disposable income has meant investors cashing in some of their shares. In the absence of a breakdown of volumes by type of investor, I'd suggest this is likely. However retail investors form like 20% of daily volumes. The one area where inflation will have a bearing is on performance of companies across the board. Especially if one just focuses electricity and fuel inflation.
- Diaspora: Credit crunched Diasporians haven't been sending as much cash home. But given the effect that this would have on the exchange rates, one can't see it. Notice that the £/Ksh and $/Ksh has been very strong since around March...
- Temporary over-supply of shares: In addition to 10bn Safaricom shares, we've had in a short period, HFCK bringing in around 100m shares, NMG doing likewise (although its proportion of floated shares remains the same) and the forthcoming 225m from KCB. It’s a lot for the NSE to absorb in a very short period. For me, this is one of the bigger unseen reasons for the current slump.
- Safaricom refund fiasco: Again, Ksh10/20bn does make a difference to the bourse transactions. Investors will tend to liquid their current holdings especially if they were investing in Safcom for speculative purposes.
- Herd mentality: This is what ultimately turns a market correction into a bear. Especially if it,s not based on fundamentals.
- Economy: Inflation+fuel infaltion+electricity inflation+drought+supply blockages+bloated expensive GoK+liquidity-resilient private sector=trouble
Bottomline: Its more a concurrence of issues that are driving the current bear session. And like the on March last year, no one reason will make it go away.