Did historic court ruling wipe out nearly US$1bn from Kenya’s stock exchange?

The surprise decision by Kenya’s top court to annul the presidential election cost the stock market billions of shillings, deputy president William Ruto said.

Appearing in his first television interview since the historic September 1st ruling, Ruto argued that the protracted election period was hurting the economy.

“For your information, after the supreme court made this ruling, we lost Ksh.100bn in our stock exchange,” Ruto said. This is equal to around US$1bn at current exchange rates. (Note: Various media reports also cited this figure.)

Was the hit on Kenya’s stock exchange as hard as Ruto made out? We checked.

“A sure sign of business fears”

Reached for the source of the deputy president’s data, his spokesman David Mugonyi told Africa Check that the figure was the value of money lost after market capitalisation at the Nairobi Securities Exchange dropped. (Note: Market capitalisation is the value of all listed companies’ shares, including those held by institutional investors and the firm’s management.)

The source of the figure was the Kenya Private Sector Alliance, an industry lobby for private business, Mugonyi said.

But in a statement on 7 September, the business lobby used a higher figure. “Last week’s erosion of Ksh.130bn from the Nairobi securities exchange market capitalisation in two days of trading, is surely a sign of the business community’s fears,” it said.

The Kenya Private Sector Alliance told Africa Check that they had sourced the figure from the Nairobi Securities Exchange.

What do the numbers show?

Central Bank of Kenya data showed market capitalisation at the stock exchange rose from Ksh.2.32tn ($22.49bn) on 27 July to Ksh.2.48tn ($24.1bn) on 31 August – the eve of the court ruling.

On Friday 1 September, trading was briefly halted at the stock exchange following the announcement by the judiciary, but restarted shortly. Data from the exchange showed that market capitalisation dropped to Ksh.2.39tn on the day – or by about Ksh.90bn.

“No one likes uncertainty especially if the uncertainty period is as long as 60 days,” Reuters news wire quoted Ken Minjire, head of securities at Nairobi-based Genghis Capital, as saying on the day. (Note: This is the period that Kenya’s electoral agency has to conduct a new election, which is currently set for 17 October.)

On the next full trading day, 4 September, the value of all shares at the stock market fell again by a further Ksh.38bn to Ksh.2.35tn. In the two days following the ruling, market capitalisation fell by about Ksh.128bn – close to the business lobby’s figure.

“It made sense to exit at that point”

But on 8 September, two days before Ruto made his claim, the value of shares at the market had rebounded to Ksh.2.43tn, a gain of about Ksh.80bn. On 17 September the value slightly dipped to Ksh.2.37tn.

Johnson Nderi, the corporate finance and advisory manager at Nairobi-based stockbroker ABC Capital said that the market tumble had been due to investor expectations, with many selling off at the same time.

“Whether you believed that the supreme court ruling would cause turmoil or not, one thing is clear is that it made sense to exit at that point. The direction would only have been downwards. If you were going to make money or protect value, you had to exit at that point,” he said.

A botched election “would deeply hurt growth”

Market players would remain cautious due to the electoral uncertainty, Polly Mwongera, an investment analyst at Kenyan investment firm Cytonn told Africa Check.

“However, for the long-term, we expect the market to remain supported by improved investor sentiment [after the elections] and fears and uncertainty dissipates,” she said, adding that undervalued stock was likely to be attractive to investors.

The stock market has recorded similar losses before, Mwongera noted. In August 2016 when it shed Ksh.166.2bn when a law capping interest rates was signed. In June 2013 it lost Ksh.171.7bn after the treasury re-introduced tax on profits made after selling assets.

A successful October election would deepen Kenya’s institutional strength and thus growth, Standard Chartered Bank’s chief Africa economist Razia Khan told Africa Check. “Anything considered a botched re-run would likely be deeply negative [for the] market, as it would weigh on sentiment and impede a real recovery.”

Conclusion: More than Ksh.100bn lost but the market has since recovered some of those losses

In making a case for Kenya to move past a protracted election following a surprise court order that the presidential vote be re-run, deputy president William Ruto said the decision wiped out Ksh.100bn from the value of stocks.

Data from the stock market shows that it lost Ksh.128bn in the two trading days following the supreme court ruling. Many of those losses have since been recovered, with a significant share recouped before Ruto made the claim

His statement, while mostly correct about a big stock market loss, is understated by Ksh.28bn ($271m). Analysts further said that the stock market has suffered bigger losses before and that share value fluctuates with investor assessment of the investment climate.

This report was written by Africa Check, a non-partisan fact-checking organisation. View the original piece on their website.