The Kenyan Equities Market, reflected by the performance of the Nairobi All-Share Index (NASI), has experienced a consistent downward trend. Year-to-date, the index has fallen by 26.7%.
Sharp declines occurred during specific periods, notably in April and May, when there was a significant 5.9% increase in the percentage change, transitioning from a 10.5% decline to a 4.6% decline from the previous month. In a similar fashion, between July and August, the decline escalated by 4.5%, reaching 5.9% from the previous 1.4%. These outliers consistently coincide with the release of quarterly reports by companies.
Earnings season, the period in which corporations unveil their financial performance, is renowned for its capacity to set the stock market on a rollercoaster ride. As quarterly reports flood in, one almost guaranteed outcome is increased volatility. As we approach the week when listed companies are expected to release their 3rd Quarter results, the market’s volatility is already evident. For instance, KCB shares hit a decade-low of KES 20.05, as investors anticipate poor report outcomes.
Several factors drive this volatility, with increased speculation and anticipation among investors being the foremost. Earnings season generates heightened anticipation within the financial realm. Investors, analysts, and traders eagerly await these financial figures to assess a company’s health. The mere anticipation can trigger market fluctuations as expectations take shape.
Earnings season also prompts investors to reposition their portfolios based on earnings expectations, leading to increased buying and selling volumes, further intensifying market volatility. Statements from company management, like James Mwangi’s remarks regarding the state of the economy and the impacted purchasing power of Kenyans, can influence how investors predict unreleased results.
Market volatility isn’t inherently good or bad; it can be an opportunity or a risk, contingent on one’s perspective and response. Responses may vary among investors, but certain fundamentals hold true. Staying informed about market developments, especially pertaining to one’s stock holdings, is essential. Employing diversification can help mitigate and distribute the risks associated with market volatility. Additionally, implementing stop orders can limit potential losses.
In my preferred investment strategy, the approach to handling market volatility is characterized by patience and a long-term outlook. Recognizing that periods of volatility are inevitable, it’s crucial to avoid making emotional or impulsive decisions, as markets typically stabilize over time. Historical patterns have demonstrated the capital gains investors have accrued from stocks such as Safaricom, EABL, and KCB over the years.
Despite their current performance, these stocks are likely to recover, based on historical trends. This perspective should be kept in mind as we enter the earnings season and the accompanying volatility it brings.
