Nearly 97 percent of equities accounts used for trading at the Nairobi Securities Exchange (NSE) have been dormant in the past two years, revealing the apathy among retail investors who entered the market during the 2000s IPO boom.


    Only 61,000 of the 2.03 million share accounts at the Central Depository and Settlement Corporation (CDSC) have participated in trading over the two years, representing a three percent share.


    Analysts said the reduced participation of retail investors is largely a reflection of the high-level speculation that dominates their investment decisions.


    They remained muted after Safaricom IPO of 2008, which brought nearly one million new investors to market after the telecoms operators failed a repeat of the KenGen debut experience in 2006 when the energy firm’s shares doubled their offer value.


    Safaricom’s share price remained below the IPO price for nearly five years.



    CDSC chief executive officer Nkoregamba Mwebesa told the Business Daily that the percentage of active accounts recovered from a low as 1.2 percent last year to the current three percent following the campaign to encourage dormant account holders to return to the market.


    “A lot of the accounts came in through the bull market IPOs we had between 2006 and 2009. Some people have never touched their accounts since then, and some may have even forgotten who their broker was…we’ve got accounts that are sitting with shares, and others with cash at the depository agent offices,” said Mr Mwebesa.


    “As part of strategic initiatives, we thought that if we could increase that number we could see more throughput in the market in terms of turnover at the exchange. Our goal was to double the number of active accounts during the period of the strategy and we actually achieved that in the first six months.”


    He added that the newly revived accounts generated 20 percent of the NSE’s trading activity in 2021, indicating the size of revenue market players is foregoing due to the inactivity of investors.



    The CDSC had from 2019 decided to freeze share accounts that had been inactive for a period of two years, barring them from transacting unless the owners applied to the corporation for reactivation.


    This was meant to protect investors against fraud, particularly those accounts that held cash balances.


    Upon freezing of an account, the CDSC then sent a notification to the account holders informing them of the declaration of dormancy, asking them to visit their stockbroker to reactivate their account.


    A majority of the dormant account holders were introduced into the market through the heavily oversubscribed KenGen and Safaricom IPOs of 2006 and 2008 respectively, which raised more than one million new investors between them.


    The two State-owned firms were floated at a time when the NSE was averaging more than one IPO per year, with ScanGroup, Eveready Kenya, Access Kenya, Kenya Re  and Co-operative Bank also listing during this window.


    Mumias Sugar also made an additional offer at the end of 2006, listing 92 million shares, while Equity Bank also entered the market by introduction earlier that year.


    Most of these investors ended up being one-time participants at the market, especially after the Safaricom share price failed to make significant capital gains in the few years after listing, falling to a low of Sh2.55 in February 2009.


    Most of the new investors coming into the market were seeking relatively quick capital gains, which had characterised the NSE in the 2000s as the economy rapidly expanded after years of dormancy.



    The outsize market gains slowed down in 2009, discouraging the speculative traders who thrive on market volatility to extract profits from share trading.


    The dearth of major IPOs in the past decade has partly contributed to the reduced activity in the stock market, denying the bourse a pool of new investors.


    The revelation of the high number of inactive accounts is, however, also indicative of the level at which local investors have sat out trading during the recent bear run at the NSE.


    Local investors account for 80 percent of the issued shares at the bourse, and their inactivity — foreigners regularly account for over 55 percent of traded activity — is hurting turnover at the bourse and in turn cutting the earnings of the NSE and market intermediaries.



    Equities turnover has fallen in seven of the past eight years since hitting an all-time annual high of Sh215.7 billion in 2014.


    Last year, traded equities turnover fell to an eight-year low of Sh137.4 billion, contrasting sharply with the jump in bonds trades to an all-time high of Sh957 billion, which showed a growing preference for fixed-income investments among investors.


    The CMA has also flagged the risk the market faces by having inactive local investors, who are outperformed by foreign ones in trading.


    The foreign investors accounted for 57 percent of traded turnover at the bourse last year and recorded net sales worth Sh10.2 billion during the year.


    The CMA in its market soundness report for the fourth quarter of 2021 said that this exposes the bourse to external shocks, despite the low share of its wealth that is in foreign hands.



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