Foreign investors put more funds in NSE as confidence grows

Foreign investors in April, for the first time this year, put more funds in the Nairobi Securities Exchange (NSE) than they sold underlining the growing confidence in the country’s economic outlook and signalling support for the Kenyan shilling.

Data from Standard Investment Bank shows the net foreign inflows into the stock market stood at $16 million (Sh1.4 billion) last month compared to net outflows of $35 million (Sh3 billion) in the first three months of the year.

The net inflows were accompanied by increased remittances by Kenyans in the diaspora which supports the shilling’s stability.

“Diaspora remittances, buoyed by the strengthening global economy, rose to their highest level so far, reaching $119.6 million (Sh10.2 billion) in March 2014 compared with $110.4 million (Sh9.5 billion) in February,” said the monetary policy committee following its Wednesday meeting.

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Total remittances for the first three months were $340 million, 10 per cent higher than that received in the same period last year.

The Kenya shilling has been stable in the last year, trading at around Sh86 to the dollar, despite low returns from traditional sources of foreign earnings such as tea and tourism.

READ: Shilling stable despite low tourism and tea earnings

Diaspora remittances have grown to be a major supporter of the Kenyan currency with the government declaring its intention to put in place policies that will see the remittance fees drop. North America has been the key driver of the diaspora remittances.

Recovery of the US economy from the global financial crisis has resulted in increased remittances as those who had dropped out of the job market are re-absorbed. Increased inflows boost the demand of the Kenyan shilling resulting to its gaining against major countries.

There had been concerns that cutting down cheap money being pumped in the United States by its central banker would result in withdrawal of foreign investors from the NSE and a decline of the shilling as witnessed in South Africa.

However the Kenyan shilling has held and the NSE seems to have rebounded from initial investor exits to record net inflows. Banking stocks were the main beneficiaries of the dollar inflows with KCB and Equity leading the way.

Foreign investors’ net activity on the KCB counter was an investment of $17 billion while they injected $6.1 billion more in Equity Bank. KCB share price is up 8.3 per cent in the last three months while Equity has risen by 21.4 per cent.

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Counters that saw foreign investors exit include Safaricom, ARM Cement and NIC Bank.

Foreign investors are choosy in their investments in Africa which is perceived to have high political risks and their increased participation in the country is indicative of their confidence in the economy.