NSE foreign investor weekly outflow hits new high of Sh1.7bn

The Nairobi Securities Exchange last week recorded its highest weekly foreign investor outflow this year at $16.99 million (Sh1.7 billion), pushing the main index further down towards the 4500 levels.

According to Standard Investment Bank, the foreign investors in the market were net sellers for the fifth week in a row, and the exits last week, especially on the Equity Bank stock bring this month’s net outflow to Sh2.9 billion.

Foreign investors have this month dominated trading on the bourse, with locals exercising caution in trading as they await a clearer signal from the market on its longer-term direction.

“Overall foreign participation stood at 56.6 per cent compared to the previous week’s 77.3 per cent. Equity Bank was the leading mover accounting for 38 per cent of the week’s activity.

“The bank also registered the highest outflows of $17.17 million (Sh1.7 billion) while KCB had the highest net inflows of $1.2 million (Sh122 million),” said SIB in their weekly market report issued on Friday.

Analysts have said that some of the outward capital flows over the past three months are going to the Nigeria stock market that had been avoided by investors in the run-up to the West African country’s General Election in March.

READ: Foreign investors flee NSE for bullish Nigerian exchange

ALSO READ: Foreigners pull out cash from NSE for second time

The outflow pattern for the first three weeks of this month also suggest that July will be the fifth straight month of net foreign outflows this year.

At the same time the investor outflow contributes to the negative impact on the local currency as it creates higher demand for the dollar when investors look to convert back their sales proceeds to the US currency.

The shilling’s depreciation also lowers the dollar returns enjoyed by the foreign investors, discouraging further investment into the stock market.

Investors, who had changed their dollars into shillings at an earlier date when entering the market, find that they get fewer dollars per shilling in return upon reconversion when exiting, compounded as well by the downturn in stock prices.

The equities market could also lose out to fixed-income investments if yields on primary securities rise markedly due to policy measures taken by Central Bank of Kenya to protect the shilling and tame inflation.

Analysts have, however, said the downturn could be arrested by new opportunities coming up for investors who had been previously priced out of the market during the bull run that characterised the market since 2012.

“Indicators from our valuations indicate that some stock prices have sunk further down below their fair values,” said Genghis Capital in a market report.

This means that investors attracted by the low valuations could provide new demand for shares that are currently priced below fair value, sparking a new rally in share prices.