97% of share trading accounts at the Nairobi Securities Exchange remain dormant

The Nairobi Securities Exchange (NSE) is facing a significant challenge as nearly 97% of equities accounts have remained dormant over the past two years, according to the Central Depository and Settlement Corporation. This alarming statistic sheds light on the underlying issues plaguing the NSE and calls for a reevaluation of strategies to revitalize the market. In a recent interview with CNBC Africa, Kevin Ngige, Senior Equities Analyst at Genghis Capital, provided insights into the factors contributing to this trend and proposed potential solutions. Ngige attributed the high number of dormant accounts to the influx of first-time investors during the initial public offering (IPO) boom between 2006 and 2008. He explained that while successful IPOs like Safaricom and KenGen initially attracted investors, the subsequent drought in IPO listings left many investors disengaged. As a result, only a mere 61,000 out of 2.03 million share accounts have been active in trading, painting a bleak picture of market participation. The lack of active trading not only hampers market liquidity but also undermines investor confidence, further stifling the growth potential of the NSE. Ngige emphasized the need for innovative measures to attract new listings and enhance market activity. He highlighted programs like Ibuka, aimed at incubating companies for listing, but noted that regulatory hurdles and cumbersome levies have deterred entrepreneurs from going public. While the NSE has historically been a regional leader in terms of turnover and performance, the prevalence of inactive accounts poses a threat to its long-term sustainability. Foreign investors account for a significant portion of trading activity, leaving local investors at a disadvantage, especially during times of market uncertainty such as elections. Ngige stressed the importance of cultivating a strong local investor base to mitigate risks associated with foreign-driven trading. In an effort to stimulate market activity, the NSE introduced a day trading fund, but its impact fell short of expectations. Ngige underscored the need for a streamlined fee structure and regulatory framework to incentivize companies to list and attract retail investors. He proposed consolidating various levies into a more investor-friendly structure to encourage capital raising through the stock market. Looking ahead, Ngige remains optimistic about the NSE's prospects, citing positive post-pandemic recovery in turnover and ongoing initiatives to boost market liquidity. He expressed hope that programs like Ibuka would pave the way for new listings and reinvigorate investor interest in the NSE. As the NSE grapples with the challenge of dormant accounts and a reliance on foreign investors, the path to revitalization lies in fostering a vibrant local investor base, reducing regulatory barriers, and promoting market participation. Addressing these issues will be crucial in positioning the NSE for sustained growth and competitiveness in the ever-evolving financial landscape.