Capital Markets

Foreign investors pump Sh1bn into top NSE company shares


Nairobi Securities Exchange staff (left) serves a customer. PHOTO | FILE

Foreign investors have pumped a net of Sh1.2 billion into Equity Bank and Safaricom shares in July as they took advantage of falling share prices to increase their holdings in local firms.

Market data compiled by Nairobi-based brokerage house Standard Investment Bank (SIB) shows Equity Bank led the market in net foreign inflows at Sh630.8 million, followed by Safaricom at Sh552.8 million.

“The discounted prices we see currently are attracting the foreign buyers, who usually come in whenever prices go low. There is also an expectation that we are nearly at the bottom of the current price slump, meaning that it makes sense to buy now,” said Sterling Capital head of research Eric Munywoki.

He added that the supply side has mainly been populated by local retail investors, whose portfolios are usually of a shorter horizon than foreign and institutional investors.

The foreign investors have been increasing their buying activity in line with falling prices at the stock exchange which has left market multiples looking attractive for long-term buyers.

“The market is currently trading at a price to earnings ratio of 12.6 times, versus a historical average of 13.8 times, with a dividend yield of 4.7 per cent versus a historical average of 3.4 per cent,” said Cytonn Investments in their July market review.

A large share of Safaricom’s net inflows came in the last week of the month, during which the telco announced a 68 cents interim dividend for the year ending March 2017, which will be paid on December 1 to investors who will be on the register on September 2.

Equity Bank’s inflows have been more spread out, with the bank emerging as the top buy option for foreign investors this year.

Bank stocks have seen their valuations drop this year, and with their performance still expected to be positive even if slower, their multiples are likely to continue looking even more attractive.

READ: Poor corporate results push NSE to 51-month low

There had been some expectations that foreign inflows may slow down in July in response to the June 23 Brexit vote that has seen the UK elect to leave the European Union.

In the first two weeks of trading post-Brexit, they did assume a net selling position, accounting for 77.7 per cent of market purchases and 82.4 per cent of market sales.

However, they have since turned net buyers looking to take advantage of the slump in the market, which has since June 23 seen the NSE 20 share index lose 6.8 per cent in value to stand at 3488 points.

On the outflow side in July, the highest net sales were recorded on the East African Breweries stock at Sh146.4 million, followed by Bamburi Cement at Sh100.9 million and Britam at Sh77.8 million.

The gap between inflows and outflows indicated that the foreign investors were not looking to sell in order to buy like was the case in the early part of the year, but were instead bringing in new capital from other investment classes into equities.