January Blues at the NSE

We are probably just now beginning to see a glimmer of hope that the January blues at the NSE are coming to an end. The bear-hug is at last loosening.

Two main explanations have been given for the dramatic decline in the NSE index in the last few weeks. One, that this is the usual January down-slide, following the extravagance of the end-of-year holidays and compounded by January's school-fees obligations. Two, that, besides, investors are holding on to their money in readiness for the expected series of IPOs in 2007. This second explanation is not all that persuasive.

A more persuasive second explanation seems to be the "Stanbic-Bank-Uganda-Effect." Clearly, the Stanbic Bank Uganda IPO swept a lot of liquid cash off the table. Most retail investors did not receive a refund -- having been fully allotted the number of shares they had applied for -- and so did not have the wherewithal to invest in other counters in January. Even more money was 'vacuumed" away by Mumias Sugar and Diamond Trust. Moreover, the continued low price of Stanbic bank Uganda (low in terms of Kshs) probably lured substantial cash to USE in January, to the chagrin of NSE mandarins. Who ever heard of the shares of the largest bank in a country selling at Kshs. 7.00 or less -- and that after a rise in market value of nearly 300% immediately following the IPO!

There are indications that savvy investors, with deep pockets, have continued to buy on the cheap, quietly, as the market has slid. These perhaps include the very same mandarins. And it has recently been noted that many of those who were allotted the full 109,500 shares of Stanbic -- and there seems to have been many more of these than first appeared -- went back to the market in January for more (for their corporate entities, if not for themselves individually, or both).

With time, all this mopping up of cheap supply has had the effect of slowing the index slide. And as end-of-January salaries and other income have become available to the retail investor, the makings of a new bull-run can begin to be discerned.