Dollar returns at NSE decline as weak shilling spurs exchange-related losses

Dollar returns at the Nairobi Securities Exchange (NSE) remain lower than shilling gains, with investors paying the price of a depreciating local currency.

Foreign-denominated investments erode when booking gains as the investors convert their proceeds back to a now expensive dollar.

The shilling has in the first three weeks of the year depreciated by 0.9 per cent to the dollar, exchanging at 91.50 as per the Central Bank of Kenya mean rates Monday.

Data from African Alliance shows dollar returns for the NSE FTSE 15—which tracks the 15 largest stocks by capitalisation and is widely used as a reference by foreign investors — stand at 0.52 per cent this year, compared to the shilling return of 1.46 per cent.

In 2014, dollar investors at the stock exchange saw a gain of 13.6 per cent compared to the NSE All Share Index gain of 20 per cent due to the shillings depreciation.

Analysts see risk of either reduced foreign inflows or reduced trading activity if the shilling continues depreciating against the dollar, especially if investors hold off selling to avoid making exchange-related losses in hope of a stronger shilling.

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

“The effect on foreign investment is real, although capital gains are also a major consideration. Without the investment inflows, the effect on the current account deficit becomes apparent as well,” said ABC Capital corporate finance manager Johnson Nderi.

READ: Shilling defies CBK liquidity mop-up to drop against dollar

The benchmark NSE 20 share Index shows a dollar return of 1.1 per cent against the shilling denominated return of 1.7 per cent this year, while the NSE All Share Index dollar return is 1.6 per cent compared to its year-to-date growth of 2.5 per cent.

In other top African markets, Egypt Stock Exchange leads in dollar returns at 7.4 per cent owing to its stable currency rate to the dollar this year, followed by Morocco at 3.36 per cent.

Nigeria Stock Exchange, which is 16.9 per cent down since the start of the year, has seen its dollar return tumble to negative 18.2 per cent, given that its currency is also 1.7 per cent down on the dollar.

The West African country is currently grappling with the security threat posed by Boko Haram separatists, as well as low oil prices and a general election due next month.

Tunisia’s TUNIS exchange dollar returns are at a negative of 2.12 per cent, while South Africa’s Johannesburg Stock Exchange returns are also in the red at 2.15 per cent.

In East Africa, Dar es Salaam Stock Exchange offers the best dollar returns at 2.3 per cent, riding on the DSE’s bright start to the year (up three per cent), while the Rwanda Stock Exchange has returns of 1.64 per cent.

The Uganda Securities Exchange’s dollar return for 2015 is in the negative 0.96 per cent.