Foreign investors have scaled up their buying activity at the Nairobi Securities Exchange (NSE) over the past four weeks, pumping in a net of Sh1 billion as return for dollar investors goes up.
The hard currency return on the constituent stocks of the NSE FTSE 15 index over the past month stand at 1.44 per cent, which analysts said has spurred foreign investors to pump in capital into the market. Year to date, the return stands at 0.23 per cent.
International investors normally pick their portfolios based on the FTSE NSE indices, where the FTSE NSE Kenya 15 Index tracks the performance of the largest 15 stocks ranked by entire market capitalisation.
The positive returns come as the shilling continues to enjoy stability against the dollar, at a time valuations in stocks have generally dropped. The foreign investors have been buying mainly the large blue chip counters which offer sufficient liquidity to support big deals.
“The buying activity is because the market is a bit discounted at the moment in terms of valuations, especially for those looking for medium term investments in the banking and manufacturing sectors,” said Sterling Capital analyst Eric Munywoki.
“Looking at the prevailing dollar returns, with the shilling stable and the indices slightly down, it would make it a good time for an investor to buy.”
For a dollar investor, a stronger shilling at the time of selling a stock relative to the time it was bought translates into an exchange gain when they convert their proceeds back to dollars, thus raising the returns from that particular investment.
Since the beginning of the year, the shilling has gained 1.1 per cent against the dollar, which has served to reassure investors who were concerned in the second half of last year—when exchange rate exhibited volatility forced the regulator to offer support by mopping up excess liquidity thus pushing up interest rates.
Most of the inflows over the past month have been on the Equity Holdings counter, which had a net inflow of Sh870 million over the period.
The counter’s price remains unchanged at Sh40. Safaricom has also attracted sizeable net inflows at Sh651 million, with investor interest rising after the firm announced a 19.6 per cent rise in net profit to Sh38.1 billion in the year to March 2016.
The telco has one of the highest returns on equity (ROE) in the market at 32.6 per cent, meaning that most of its profit goes to shareholders in dividends as it has already carried out most of the necessary capital investment required to generate income.
On the foreign outflow side, EABL has led the market at Sh713.5 million in the past one month, while KCB has also had a net outflow position of Sh256 million.