Halfway through last month, the Kenyan Stock Market rose beyond the 4,000 point mark as measured by the market’s most popular performance index – the NSE 20 Share Index. This meant that, for the first time, stock prices had risen past a point last seen in mid-2011.
The NSE 20 Share Index measures the prices of 20 of the best performing shares at the market and includes shares like KCB, Safaricom, EABL and British-American Tobacco (BAT). When the index moves up, you know at least some of these 20 “blue chip” stock prices are rising, and vice-versa. So, does a higher performing index mean you will make more money from stocks?
In the second half of 2011, high inflation and a weak shilling pushed share prices to record lows as measured by the Index which closed at a 2 year low of just over 3,000 points by early December. Many of the shares inlcuded in the index were trading at their lowest in a long time.
For the first time since 2009, KCB dropped to trade at the 15-shilling range by October while in December Nation Media shares fell to trade in the 135-shilling range last seen in more than one year. Uchumi also dropped to its lowest of 6.50 shillings in December since relisting on the market in May. Even the strongest weren’t spared – by mid-November BAT shares were at 235 shillings where they had last been in one and a half years while EABL went as low as 150 shillings in October from as high as 200 shillings in the same year.
As inflation subsided in the first half of the year and the shilling appreciated to a more familiar “80-something” to the dollar, investors – especially foreign ones – put their money back mainly into blue chip shares thus driving up their prices once more.
So, had you invested in some of NSE 20 shares late last year (assuming you somehow found the money amidst high food, fuel & everything prices), how much would you have made by now? To find out, we will pick one NSE 20 share from each of the industries represented in the stock market and use this year’s price fluctuations to see how much you would have made with a 50,000 shilling investment in the stock market late last year. The shares chosen by industry are as follows:
With a 50,000 shilling investment, your stockbroker would charge you an average 2% commission leaving 49,000 shillings available for investment. Here’s how much you would have made with each of the above shares:
- Rea Vipingo – Buying the shares in late November at KES 19.40 per share, 49,000 shillings would afford you 2,525 shares worth 46,712 shillings today; a capital loss of 2,288 shillings in just under 1 year.
- KCB – Buying in early December at 15 shillings per share, your 49,000 shillings would have afforded you 3,266 shares worth 97,980 shillings today. That’s a capital gain of 48,980 shillings in just under one year plus an additional 6,042 shillings in dividends (KES 1.85 per share).
- Uchumi – Buying the shares in December at 6.50 shillings would have gotten you 7,538 shares which would today be worth 146,614 shillings; a capital gain of 97,614 shillings from the 49,000 shillings invested. You would also be eligible for 30 cents per share in dividends totaling 2,261 shillings for a total gain of 99,875 shillings from this share so far.
- Bamburi Cement – In mid to late November, the share traded between KES 150 and 158. At the average price of KES 154, the 49,000 shillings invested would get you 318 shares worth 55,968 shillings today for a capital gain of 6,968 shillings to date. Total dividends paid to you would be worth 3,180 shillings resulting for a total gain of 59,148 shillings from this share to date.
- Kengen – Buying on 1st December last year at KES 8.50 per share would get you 5,764 shares worth 55,911 shillings today; a capital gain of 6,911 shillings. Dividends paid would be worth 2,882 shillings for a total gain of 9,793 shillings from this share in one year.
- Mumias Sugar – Buying at the share’s KES 5.25 late November average, you would get 9,333 shares worth 54,598 shillings today with a capital gain of 5,598 shillings to date. Dividends payable to you would be worth 4,667 shillings bringing your total gains to 10,265 shillings so far.
- Safaricom – For most of late November last year, the share traded at KES 2.90. With 49,000 shillings, buying them at this price would afford you 16,896 shares worth 81,101 shillings today. Dividends paid during Safaricom’s year end on 31st March 2012 would earn you 3,717 shillings at 22 cents per share with a total investment gain of 35,818 in the one year period so far.
Returns
Would such returns be good enough for you in a year? Without a doubt, some counters (like KCB) could have made you abnormal returns had you invested while the market was down a year ago. Others like Rea Vipingo may have lost you money. After all, as someone said:
“I will never be in the stock market. It’s just gambling. I’m a gambler, but I’ll gamble on the practicality of things.”
For some insight on how you might make money on the stock market, read our posts on speculative and value investing.
Availability of Shares
Just one important thing to add, this scenario assumed that the shares bought were available at the exact time and in the amounts desired, which is not always the case. In the Kenyan stock market, there has to be another shareholder willing to sell you the number of shares you want and at the price you want. Only with such as match is a trade automatically executed by the NSE’s automated trading system.