Foreign investor participation drops at bourse

The net foreign cash inflows — the difference between the sale and buy orders — to the Nairobi Stock Exchange dropped by 72 per cent in the second quarter ended June compared to the first three months of the year on increased profit taking.

In the period under review, the NSE realised Sh1.4 billion in net foreign investor cash flows compared to Sh5 billion in the first three months of the year.

This placed local investors in the driver’s seat, indicating the pace of the Nairobi bourse has been sluggish since March compared to quarter one.

For instance, the benchmark NSE-20 index, which tracks the performance of blue chip firms, recorded a 26 per cent return in quarter one compared to 6.6 per cent return in quarter two.

Foreign investor participation at the bourse has been a key value-driver for listed equities after the local investors flight during a two year economic lull from 2008.

“Many investors are cyclical and fund managers tend to take account of where they are at in the middle of the year,” said Mr Lucas Otieno, chief executive officer at African Alliance Kenya Securities Limited.

He added that most of the foreign investors were taking profits after buying on appreciation of the shares after buying undervalued stocks in quarter one.

Other analysts attributed the reduced inflows by foreign investors to the weak Euro zone economy, which has reduced investors’ appetite for equities for fear of share price erosions.

But unlike in the past two years when local individual and institutional investors opted to stay on the market sidelines, an upswing in business sentiment and a recovery of the local economy have attracted local investors back to the bourse.

“Local investor participation has increased at a higher proportion as compared to foreign investor participation” said Mr Wycliffe Masinde, an equity analyst at Kestrel Capital.

Local investor turnover increased 47 per cent to Sh13.8 billion in the three months to June compared to Sh9.4 billion while foreign investor turnover increased six percent to Sh10 billion from Sh9.5 billion over the same period of time.

Total turnover at the bourse increased 26 per cent to Sh23.9 billion from Sh18.9 billion at the end of April.

Improving economic fundamentals, a stronger earnings outlook, and positive sentiments supported the market as investors’ risk appetite increased.

Market players are reluctant to rule out a possible correction in the market as investors take profits