The percentage of free float at the NSE held by foreign investors rose to an all-time high of 37.2 per cent by mid this year, raising the risk that mass share sell-off would have a negative spin-off on the forex market and the economy.
Market analysis by HTM Capital shows that foreign investors have increased their holding of the freely traded shares in large-cap stocks such as Safaricom, BAT and Equity Bank and now hold Sh335 billion out of the Sh900 billion worth of free float shares at the NSE.
The market’s total market capitalisation stands at Sh1.99 trillion.
Free float shares in a company are those that are likely to be brought to the market in the normal course of trading, generally taken to exclude those held by the government, strategic investors, long-term pension fund investors and also locked-in shares.
“In the first half of 2016, foreign investors’ free-float holding amongst the top five companies by market-cap (Safaricom, EABL, Equity, KCB and BAT) totalled Sh258 billion ($2.54 billion).
‘‘As a percentage of total foreign investors’ free-float holding, the top five companies by market-cap accounted for 77 per cent, the highest level since quarter one of 2012,” said HTM Capital in its September 2016 business and economic update.
“This level of concentration amplifies the risk of foreign portfolio outflows at levels that would negatively impact the forex market and the economy.”
In the six months to June, foreign free-float holding increased across 30 counters at the NSE, remained unchanged in 10 and declined in 26.
KenolKobil, Williamson Tea and CFC Stanbic recorded the highest percentage increase in foreign free-float holding, while Atlas Development, EABL and Carbacid Investments recorded the highest decline in foreign holding.
The exposure to foreign investors in banking stocks is particularly of concern in light of the interest-rate cap law signed last month, HTM says.
A third of the free float shares held by foreigners (Sh122 billion out of Sh335 billion) are in listed banks.
Should the performance of the lenders decline as a result of the tighter margins occasioned by the rate cap, investors would be inclined to pare off holdings in the stocks, which are just starting to show signs of recovery after a battering.
Foreign investors have been dominant players in the Kenyan stock market over the past one year. They have consistently accounted for more than 60 per cent of monthly activity since the second quarter of last year, peaking at 82 per cent last month.