Money Markets
NSE off to strong start as foreign investors return
A trader monitors the Nairobi Stock Exchange electronic board. Many counters are recording increased interest from foreign investors. Photo/FILE
Posted Wednesday, April 21 2010 at 00:00
Their increased presence at the bourse has been prompted by the steady share price appreciation and falling returns on the government paper as well as improved profitability by listed firms.
The long dated bonds, for instance, has dropped by three percentage points over the past six months on increased liquidity in the market, forcing the Central Bank of Kenya to forecast further interest rate reduction on government paper.
“With interest rates on bonds coming down equities are becoming more attractive and institutions are changing their strategies,” says Mr Musau.
Retail investors, who fled the market after burning their fingers in the first major bear run since an unprecedented stock market rush-in that started with the KenGen IPO in 2006-are also returning to the market spurred by the share price appreciation.
The collapse of three stockbrokers in quick succession, which were heavy with retail clients, is widely believed to have been the single biggest factor that scared away the majority of the retail investors from the NSE.
Recovery phase
The growing interest has pushed the equity market into a recovery phase.
According to Mr Murigi, the NSE share index is likely to push through the 5000 index mark in the next two months, a clear indication of the renewed interest in the market.
Other analysts have indicated that factors behind the renewed interest are the falling yields on bonds, expected good performance by quoted companies and increased access to credit.
“The falling returns on bonds and renewed interest by financial institutions to provide credit facilities will eventually increase the attraction of equities”, said Onchera Maiko, the general manager for investment at British American Asset Managers (BAAM).
BAAM in its quarterly economic update indicated that the return on the equity market is at 25.4 per cent with the market still fairly valued at 14.5 times declared earnings compared to say the United States which is at 17.8 and Germany at 19 times.
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