Foreign investors alter stockbrokers’ fortunes

Though Renaissance Capital Kenya made a strong entry into the Kenyan market raking in Sh805 million in pre-tax profits in its first year of its operations in 2008, most of this money came from the dealing arm of the investment bank. The firm accounted for a paltry 0.9 per cent market share at the close of the year.

The firm which is barely two years old in the Kenyan market grew its market share to 4.3 per cent of total equity transactions, seen as the result of the leverage it enjoys from its international investment bank operations.

“There has been renewed interest in sub-Sahara Africa in general and East Africa in particular from private equity funds and other forms of long term capital,” says Renaissance Capital Kenya managing director, Patrick Mweheire.

Helios Investment Partners is raising a $600 million fund for Africa while Citadel Investment has allocated up to $400 million for investments in the East Africa. Market observers say the continued dominance by Kestrel Capital which has emerged as the market’s top dog for the second year running was a tribute to the strong international network that its chief executive Andre DeSimone has built.

Veteran stockbroker Jimnah Mbaru’s Dyer and Blair is said to be reaping the fruits of the firm’s lead transaction advisory role in the 2008 Safaricom initial public offering (IPO) especially in recent weeks that investor interest in the market has been building up with the mobile phone company’s share appreciation.

ApexAfrica Investment Bank, with a firm presence in the institutional investors end of the market, has set up an international dealing desk and employed traders with strong foreign investor connections to run it.

A sharp spike in the average cost of living in 2008 and 2009 characterised by double digit inflation and loss of investor confidence following improprieties by some stockbrokers reversed a growing interest in the stock market that saw the number of investor accounts rise by more than 1.5 million in just three years.

Mr Karina said that as locals pulled back from investing in shares, foreign investors stepped up their participation, cherry picking stocks they perceived to be grossly undervalued.

That move appears to have put overseas based investors in control of trading volumes at the bourse changing the fortunes of those who deal with them.

Blue chip stocks with high average daily turnovers such as KCB, Safaricom, Equity, KPLC, EABL and Kenya Airways have remained the foreign investors’ favourite picks. These counters are well spread across the different economic sectors making it easy for foreign investment managers to balance their portfolios.

Mr Karina says local intermediaries with established relationships with foreign investors have benefited most since mid last year when foreign investors increased their exposure in emerging and frontier economies after sensing signs of stabilisation of the global financial markets.

Market turnover shows that foreign investors pumped into the economy an estimated Sh8.3 billion between January and December (on a net basis), raising the profile of the NSE as an important source of foreign currency at a time when traditional sources of forex such as tourism and agricultural exports slowed down.

Although the NSE remained a playground for international investors available trading data shows their participation has not crossed the 50 per cent threshold since 2004.

Kenya’s position as Eastern Africa’s financial hub has however caught the eye of international investors, who are keen to cash in on the promise of much higher returns on average here than they can hope for in their mature markets.

Analysts say apathy by local investors towards the stock market after most burnt their fingers in the first major bear run since an unprecedented stock market rush-in that started with the KenGen IPO in 2006 has given international investors an upper hand at the bourse.