Big firms’ dominance at stock market declines to four-year low

The wealth concentration among the top five NSE-listed companies by market capitalisation has fallen to a four-year low as investors diversify their stocks portfolio.

New data from the Capital Markets Authority (CMA) shows the concentration of the five most valued stocks fell to 67.8 percent of the Nairobi Securities Exchange (NSE) total market capitalisation in the quarter to June from 71.97 percent in March.

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The five in the quarter were Safaricom, Equity Group, East African Breweries Plc, KCB Group and Co-operative Bank of Kenya.

The market concentration of the top five stocks was the lowest since March 2019 when the rate of dominance by market cap stood at 67.58 percent.

The reduced dominance of the five stocks has been attributed to investors exploring other counters against a general slide in the performance of the stock market.

“Over the past year, there has been a continuous reduction in market concentration by five specific companies, indicating a growing openness among investors to explore opportunities beyond these select entities,” the CMA stated.

According to the authority’s director of policy and strategy Luke Ombara, investors have been seeing opportunities in smaller cap stocks, influencing the shift.

“Investors are going beyond the blue chips where they see opportunity, hence the trend in the re-distribution,” he said.

Despite the positive trend, the market remains exposed to high concentration risks indicated by a concentration rate of more than 50 percent by the five most valuable stocks.

The CMA has tipped the review of key listing and disclosure regulations to further cut the concentration risks in addition to other initiatives that include investor education.

“This review aims to establish more favourable listing requirements that attract a broader range of companies to list on the market, thereby providing investors with a wider variety of investment choices,” the CMA added.

“By empowering investors with knowledge and information to make informed investment decisions, the aim is to reduce the inclination to concentrate investments in a limited number of dominant companies.”

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During the period, both the top stocks and the NSE were on a downward trend with the market cap of all stocks shrinking to Sh1.666 trillion at the end of June from Sh1.756 trillion at the end of March.

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