How to make cash in a falling market

Three weeks ago, Ms Josphina Mwenda took a daring investment risk at the falling Nairobi Securities Exchange. At the time, close to 78 per cent of the stocks were shedding prices, with Britam and National Bank of Kenya (NBK) leading the losing pack.

“I had been closely monitoring Britam and when it fell below Sh20, I knew it was just a matter of time before I made a killing.” When the stock dipped to a 52-week low of Sh14 last month, she pounced: “I bought 35,700 shares worth about Sh500,000.”

Her plan was to exit once she realised a 20 per cent profit. Well, on Thursday morning last week, she realised a profit of 37 per cent after selling her stake at Sh19.25 per share, making a gross profit of Sh187,000. Had she not offloaded her shares early on Thursday, her profits would have reduced by Sh80,000 as the stock had reversed to Sh17 apiece just two hours to the end of trading.

However, not all investors have been lucky. Take Mr Robert Miyumo: “I bought 13,000 NBK shares at Sh23 each hoping that they would continue to rise.” Mr Miyumo, whose investment was speculation-driven, ran to the NSE after NBK announced half-year net profit jump to Sh1.72 billion. By the time he made his bid, the share had gone up by 15 per cent from a bargain of Sh19.05. Since then, Mr Miyumo has been watching helplessly as his portfolio shrinks. By Thursday last week, he was staring at Sh46,000 loss.

In contrast, Ms Stella Kurgat is happy to have offloaded her NBK stake. After investing Sh300,000 in 18,750 NBK shares at Sh16 each last month, Ms Kurgat sold them at Sh22 per share on Monday last week, making Sh112,500 profit gross of transaction fees.

MARKET CAPITALISATION
Thousands of investors have been bitten hard by the bear. Take shareholders of Britam who took position at a high of Sh40 per share; their market value has shed over 50 per cent. In the same vein, Equity Bank stock has dropped to Sh40 from Sh63 in less than a year. KCB has gone down to Sh51 from Sh65 apiece, while Safaricom share has dipped to the current Sh15 from Sh17.90.

In market capitalisation, Equity Bank has shed Sh31.4 billion, EABL Sh25.3 billion while BAT and Britam have suffered Sh13.6 billion losses. Penny stocks such as Home Afrika, Mumias Sugar and Eveready have been subdued to Sh2.50, Sh1.90 and Sh3.80 per share respectively.

Overall, the NSE 20 Share Index has lost 11.7 per cent while the NSE All Share Index has dropped six per cent. According to Mr Ndindi Nyoro, the head of Investax Capital Limited, the current monthly nose dives by the NSE are reminiscent of August 2010 when investors at the bourse lost Sh53 billion in one month.

“The total value of shares dropped to 1.126 within four weeks of trading, and this fall was despite impressive profit returns by listed companies,” he says. For instance, between February and May, NSE investors lost to the bear by another Sh149 billion, with the banking sector leading the fall with a negative return of Sh68 billion. In this period, manufacturing lost Sh42 billion while insurance lost Sh12.2 billion.

FOREIGN OUTFLOWS

By June, foreign outflows exceeded inflows by 11.1 per cent, with much of the outflows going to the Nigeria Stock Exchange 30 Index. By late July, NSE investors had lost Sh120 billion while the NSE 20 Share Index had dipped from a seven-year high of 5,499.64 to a low of 4578.47 points.

Securities analyst Chambua Ogoti says the current bear has been influenced by huge foreign investor outflows. His views are echoed by Mr Rufus Mwanyasi, the managing director at Canaan Capital Limited: “Growth problems due to high interest rates and a rising inflation have knocked the stock market well below key support levels,” he says.

Research analyst at Old Mutual Securities Limited Eric Munywoki says there are two strategies you could employ to make money now. “You may venture purely as a speculator or a long-term investor.

Nearly all shares are highly discounted at the moment and if you buy now and hold onto your portfolio for six to 12 months, you will get a profit higher than 20 per cent.”

“The market could still fall further and currently, an investor may prefer to hold onto their money and wait for the level where the market will bottom out,” says Mr Nyoro, adding that with the possibility of the US Federal Reserve raising rates, the shilling will take a fresh beating. “Be cautious about trading strategies such as averaging your portfolio to avoid sinking further.”

Mr Munywoki adds that the current bear market is likely to persist until September when the US Federal Reserve makes a decision on interest rates. “However, the market may not end the year as highly as it began,” he says.

PANIC SELLING

Mr Mwanyasi adds that if you’re staring at a loss, there will be “little point in panic selling unless the company you are invested in is highly likely to go bankrupt.”
Some of the shares you will do well to target include CIC, Carbacid and Britam which are all at over 50 per cent discount, says Mr Ogoti. Further, with KCB posting Sh9.2 billion half-year profit and currently trading at Sh51 price, you may do well to seek a fine entry point.
“These stocks remain fundamentally strong and no bear markets last forever,” says Mr Ogoti.