The stock market is set to attract higher foreign capital inflows this year compared to 2015 despite the much-feared US Fed rate hikes, analysts at Sterling capital say.
The hike in December was the first since the 2008 financial crisis and with another expected in March experts have raised the spectre of further capital flight from smaller, riskier markets back to the developed markets.
However, other developed countries are not doing as well as the US economically, especially in the Eurozone which is currently rolling out its own quantitative easing programme which could also provide additional source of inflows for markets like Kenya.
Sterling analysts Eric Munywoki, Maureen Kirigua and Willis Nalwenge say in the 2016 overview of global markets that stronger economic fundamentals, including rising foreign reserves and manageable debt are likely to help Kenya withstand the external shock.
“Clearly, the US economy cannot accommodate all these funds from emerging markets and hence we still believe that the funds will find their way back to emerging markets….which have high growth rates,” said the analysts.
“Overall, we foresee major signals that will herald the change in market sentiments and garner investor confidence for (Kenyan) equities in 2016 including improving macroeconomic indicators, stable monetary policy, potential capital inflows, infrastructure spending and tourism recovery.”
According to the analysts, the expected introduction of new products such as derivatives, exchange traded funds, as well as the start of short selling, securities lending, margin trading and Sukuk products in the stock market will improve market liquidity and hence attract more foreign investors.
Further, they argue the market has opened the year on a clean slate unlike 2015 when the first quarter trading was harmed by the reintroduced capital gains tax—later removed by Parliament— which caused many investors to sit out trading awaiting clarity on its implementation.
On their part, analysts at Cytonn Investments said the monetary policy divergence between Europe and the US is likely to make investors wary of making large-scale shifts in their portfolios across markets.
As such, they expect that Kenya will continue to attract relatively the same levels of foreign investor flows as 2015.
“These rate hikes and alternative market destinations for investment have already been priced into the market,” said Cytonn.
Last year, foreign investors were relatively balanced in their level of selling and buying in the Nairobi Securities Exchange, pulling out a net of only Sh670 million from the market according to data from the Standard Investment Bank.
This was in contrast to the previous three years when flows were heavily skewed in favour of the buying side, at a net of Sh21.73 billion, Sh25.56 billion and Sh3.53 billion in 2012, 2013 and 2014 respectively.