Investors at the Nairobi Securities Exchange are expected to continue boycotting the bourse after it emerged as the worst performing in the world in 2016.
The Nigerian Stock Exchange closed 2015 as the worst performing bourse globally, but now that the NSE has taken over the distinction, it could slow down performance in neighbouring exchanges with which it is closely tied.
The NSE 20-Share Index closed the second week of trading on January 13 at 2,971.10, hitting a seven-year low that was last seen in 2009.
Analysis by Bloomberg shows that since the beginning of the year, shares at the NSE have dropped by 6.9 per cent, extending last year's 8.5 per cent decline.
The performance of NSE is affecting other regional stock exchanges where Kenyan companies are cross-listed, particularly financial services, with share prices of banks having already dropped.
The Uganda Securities Exchange has eight cross-listed firms with the NSE, the Dar es Salaam Stock Exchange has six, and the Rwanda Securities Exchange has four.
With the NSE performing poorly, the bear run witnessed over the past two years is likely to extend further. Kenya is currently facing a drought and preparing for a potentially volatile election in August, prompting a wait-and-see attitude among investors.
NSE chief executive Geoffrey Odundo said that with the market on its worst run yet, domestic investors, particularly pension schemes, are putting their funds in safe havens like bonds, while foreign investors are waiting for better prices.
"Because of the issues around volatility in the markets, most pension schemes over the past two years have lost value on their equity holdings; they want to play it a bit safer," Mr Odundo said to Bloomberg.
He added that government paper has historically given pension schemes a better performance and that is why investors are willing to buy it.
Fixed income assets
A survey by financial services firm Alexander Forbes shows that pension schemes are increasingly looking to invest in fixed income assets, mainly government and corporate bonds as well as Treasury bills due to the depressed state of the NSE.
The survey shows that between January and June 2016, private pension schemes posted a net negative return on investment of 3.7 per cent due to the subdued performance of the NSE. This forced most of them to slash their equity portfolios by as much as 25 per cent.
Foreign investors, who dominate trading at the bourse, accounting for 70 per cent of volumes last year, are expected to maintain a flight mode as listed companies face yet another difficult year.
Over the past two years, at least 18 listed companies have issued profit warnings, an indication of how tough the economic environment is.
"Foreigners are waiting for better prices and are only picking stocks at fairly low prices which has dragged the index downwards, especially given that when the stocks that really drive volume, the telcos and the banking sector, fall, they drag the index down," said Mr Odundo.
Investors feel the pinch
According to the NSE, investors lost $1.1 billion in 2016, after the bourse closed the year with a market capitalisation of $17.9 billion, a 5.85 per cent decline from $19 billion on December 31, 2015.
During the year, the benchmark NSE index dropped 21.15 per cent year-on-year to close at 3,186.21 points, down from 4,040.75.
In Tanzania, investors at the DSE lost $675 million after market capitalisation declined from $9 billion in January 2016 to $8.3 billion in December.
The DSE All Share Index stood at 2,198.40 points on the last day of trading, down from 2,353.28 points on the first day of trading.
In Uganda, investors lost $1.1 billion after market capitalisation at the USE dropped from $6.7 billion at the beginning of the year to $5.5 billion at the close of the year.
During the year, the USE All Share Index declined by 15 per cent, to close the year at 1,486 points from 1,987 points at the beginning of the year.
In Rwanda, investors lost marginally: The RSE begun the year with a market capitalisation of $3.3 million in January, and closed the year at $3.2 billion. During the year, RSE's All Share Index declined slightly from 130.56 points at the beginning of the year, closing the year at 128.45 points.