Investors in Kenya are returning to stock market as interest rates on government securities plummet. Most investors lost confidence in the once lucrative market as both small and institutional investors fled the stock market about two years ago as prices of shares tumbled, some by over 40 percent and others traded below initial public offer (IPO) prices.The situation was further exacerbated by a high number of stock brokerage firms that shut down or engaged in fraudulent selling of clients’ shares leading to massive losses.

This was reflected in the buying of shares of companies that listed at Nairobi Securities Exchange (NSE) during the period, among them CFC Insurance Holdings, TransCentury and British American Investments Company (Britak). Shares of these firms, some of which were seeking to increase their capital, were undersubscribed.The poor performance of the market affected the NSE 20 share index, which dropped by 27.7 percent in 2011 closing at 3,205.02 points down from 4,433 points reported in December 2010. Investors, however, found lucrative opportunities in government securities, mainly Treasury bills and bonds, whose interest rates rose to an all-time high of 21 percent. But a move by Central Bank of Kenya (CBK) to increase and hold its benchmark lending rate at 18 percent to rein in on runaway inflation and stabilize the shilling against world major currencies has seen interest rates on both short and long-term government papers fall.

Interest rate for 91-day Treasury bills has declined from 21 percent in January to less than 10 percent currently. The rates for the securities are expected to fall further in CBK’s subsequent auctions. Similarly, interest rates on 182-day Treasury bills and bonds have also plunged to about 10 percent. "Weighted average interest rate on 182-day Treasury bills declined further by 58.8 basis points to stand at 10.327 percent,” CBK said in its weekly bulletin report for the period ending May 31. The low interest rate, according to CBK, has seen investors shy away from investing in the securities. "Sharp decline in interest rates on Treasury Bills and Treasury Bonds has made investors seek alternative investments in other markets and countries,” said CBK. The situation has been blamed for the weakening of the Kenya shilling, which now exchanges against the U.S dollar at 87, up from 83 in May. Most bids of Treasury bills and bonds in the recent weeks, according to CBK, have been undersubscribed. "During the week ending May 30, 2012, the government offered for sale 24 million dollars worth of 182-day Treasury bills. The demand for the paper was low as it attracted bids worth 14 million dollars, representing a 58.58 percent performance rate and all bids were accepted. Total non-competitive bids amounted to 4 million dollars,” say CBK in the weekly report. The stock market, which has been volatile, is therefore emerging as the best alternative for investors. 

 Statistics indicated performance at NSE in the past two months was upbeat, with most stocks which have been on a losing streak regaining. Stocks that have been performing impressively in the past weeks include those of AccessKenya Group, British American Tobacco, B.O. C Kenya Ltd, Safaricom, Barclays Bank, Nation Media Group, Kenya Power and CFC Stanbic Holdings Ltd.