A bearish Nairobi Securities Exchange (NSE) has this year been outperformed by peers on the continent in terms of returns, raising the possibility of investors being lured from the local bourse by higher dollar returns elsewhere.
Market data compiled by African Alliance shows that out of the top 10 stock exchanges in Africa by market capitalisation, the NSE is only the seventh best performer year to date. The bourse was the third best performer at the end of last year.
Using respective All Share indices as a measure of returns, the local market is behind the Johannesburg Stock Exchange (JSE), second tier peers such as Egypt, Morocco and Tunisia, as well as smaller markets such as Tanzania and Mauritius.
In the first seven months of the year, the NSE saw reduced trading volumes as local institutional investors took a cautious stance, instead concentrating on the fixed-income market where they have enjoyed better returns.
“We expect local institutional investors to remain cautious in the equities market until global markets’ uncertainty subsides. We expect to see foreign-dominated trading, with investors taking both sides of the trade to manage their positions as selling pressure continues. There remains risk of capital flight from risk-averse foreign investors, as they seek refuge in safer investments,” says Faida Investment Bank in their latest market outlook report.
The NSE All share index is 1.2 per cent down year to date, with the NSE 20 share index 14.3 per cent down.
The best performers among the 10 large exchanges in Africa include Tanzania with a gain of 20.8 per cent, Morocco (11.3 per cent), Tunisia (6.3 per cent) and South Africa, which is up 3.3 per cent year to date.
Nigeria, Botswana and West African composite exchange BRVM have recorded lower returns compared to the NSE.
In terms of dollar returns, which foreign investors look at when putting in capital into an exchange, the NSE is -4.7 per cent for the year, as the benefits of having a stable shilling are negated by the falling valuations of stocks.
Other large exchanges normally favoured by foreign investors have varying returns, each dependent on the performance of their currency to the dollar.
The JSE has a healthy dollar return of 17.6 per cent year to date, boosted by a resurgent rand that has gained nearly 14 per cent to the dollar since January following a bruising 2015. Egypt’s exchange is giving a dollar return of 12.1 per cent while Morocco’s is at 3.5 per cent.
The Nigeria Stock exchange, which is seen as Kenya’s competitor for foreign flows, is currently offering the worst in dollar returns among the main exchanges on the continent at -40.3 per cent after naira devaluation on exchange rate decontrol.