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.

Last year, when the NSE 20-share index hit 2,379.86 points in March, a number of investors jumped into the market using the attractive entry point that also set the market on a bullish path.

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

Analysts at PineBridge Investments — formerly AIG Investments — say stocks are fairly priced compared to other African stock markets and do not see a fall soon.

And as interest rates edge downwards and cheap credit, market observers are betting that the current rally can be sustained if events on the political front remain calm.

In an earlier interview, Mr Judd Murigi, head of research at CfC Stanbic Financial Services said foreign investors “have certain thresholds and are attracted to counters which have a high market capitalisation value and are very liquid.

They also look at the company’s fundamentals, competitive position, company prospects and target price forecasts by local and international analysts.”

Blue chip stocks with high average daily turnovers such as Safaricom, East Africa Breweries, KCB Bank, Equity Bank, Mumias Sugar and Kenya Airways have remained the investors’ favourite picks.

Price dip

This has seen foreign trades account for more than 50 per cent of these shares in the quarter ended June.

Analysts see the market remaining on a steady recovery path although there are also expectations that some profit-taking will lead to a dip in the share prices in the medium term.

The outcome of yesterday’s referendum is also expected to influence the direction of the bourse in the coming weeks.

“The markets are nervous of the outcome,” Robert Bunyi, an investment analyst at Mavuno Capital told Business Daily.