NSE tops regional exchanges in dollar returns for 3 years

Kenya’s stock market was ahead of regional exchanges in dollar returns, rewarding foreign investors who have pumped money into the market for the last three years.

Data from Stanlib for the third quarter of the year showed the more inclusive Nairobi Securities Exchange All Share Index had a dollar return of 20.4 per cent that due to the stable shilling matches the index return of 20 per cent.

Other East African bourses have recorded lower dollar returns, with Dar es Salaam Stock Exchange (DSE) at 12.8 per cent, the Uganda Securities Exchange (USE) at 15.8 per cent and the Rwanda Stock Exchange (RSE) at 8.1 per cent.

In terms of index returns, the DSE is up 44 per cent this year though to stand at 2843 points, the USE up 21 per cent to 1834 points and the RSE up seven per cent to 250 points.

Foreign investors in African markets exchange their dollars to local currency when they invest and buy back the greenback on exit.

“Investors coming into these markets look at both the dollar return and inflation. These are key considerations,” said ABC Capital corporate finance manager Johnson Nderi.

“For markets whose currencies have depreciated to a larger extent, the foreign investors have to compensate for the exchange loss from their returns.”

The Kenya shilling is currently exchanging at 2.9 per cent lower to the dollar compared to January, at a mean rate of 89.15. September was the worst performing month in the year for the currency, when it slid past the 89 level for the first time since late 2011.

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The Tanzania shilling has depreciated by seven per cent to the dollar this year to exchange at 1,685 units. The Uganda shilling is down six per cent at 2,680 units to the dollar, while the Rwanda Franc is down 3.5 per cent to 689 units to the dollar.

In other African markets, the trend is maintained. In Ghana the cedi has depreciating by 30 per cent to the dollar, pushing greenback returns from the Ghana Stock Exchange to a negative 31 per cent.

Other African markets looking at negative dollar returns in the year-to-date include the Johannesburg Stock Exchange (-0.4 per cent), the Nigeria Stock Exchange (-2.8 per cent) and the Zimbabwe Stock Exchange (-3.4 per cent). The dollar return for the Egypt Stock Exchange is the highest among the continent’s main markets at 40.7 per cent.

Stanlib (formerly Stanbic) expects foreign inflows to continue in the Kenyan market but issues a note of caution over the effect of capital gains tax.

“Performance at the bourse is likely to be supported by increased allocation by foreign funds to frontier markets. Market performance may, however, be dampened by year-end profit taking and market reaction to the introduction of capital gains tax on listed equities,” said Stanlib in the quarterly review.

Even as it trails the NSE in terms of dollar returns, the DSE has rewarded investors with an impressive third quarter performance that has seen total market capitalisation grow to Sh637 billion (Tsh12.1 trillion) in September from Sh394.7 billion in July.

“This growth was mainly supported by price rally in most counters coupled by the two new listings during the quarter; Swala Oil and Gas and Uchumi Supermarkets,” said African Alliance in a regional markets analysis report.