Capital Markets

Foreign investors show faith in NSE listed companies ahead of elections

Nairobi Stock Exchange trading floor. Increased international investor demand at the NSE has raised prices of some shares. File
Nairobi Stock Exchange trading floor. Increased international investor demand at the NSE has raised prices of some shares. File 

Foreign investors made a net investment of Sh20 billion at the stock market between January and November. According to the latest data from the Nairobi Securities Exchange (NSE), international investors had bought shares worth Sh48.75 billion between January and November and made sales worth Sh29.14 billion, making them net investors of Sh19.605 billion.

Their net purchase position is in stark contrast to the situation last year, when they were net sellers.

Market analysts, however, predict that the strong demand could wane starting this month as foreign investors start re-configuring their portfolio to reflect uncertainties over the forthcoming poll.

“This year the currency has remained relatively stable and the rate of inflation has dropped thereby encouraging foreign investment, (but) I guess the trend could change as the country approaches the elections,” said Kuria Kamau, a research analyst at Kestrel Capital.

A disputed presidential election in 2007 triggered violence that sharply cut economic growth to 1.7 per cent in 2008 from 7.1 per cent in the previous year.

Most listed companies will announce their full-year results after March, which could also impact on both local and foreign investors trends at the stock market.

According to the data for the month of November, Safaricom, East African Breweries, KCB, Equity Bank, Kenya Power, KenolKobil, Uchumi, Cooperative Bank, British American Tobacco and Barclays Bank were the 10 most popular counters for institutional foreign investors.

Foreign investors made purchases of stocks worth Sh36.78 billion in the first 11 months of 2011 and sales worth Sh37.49 billion, meaning that they were net sellers by Sh715 million.

Between January and November 2010 they had made purchases worth Sh28.45 billion against sales of Sh14.51 billion making them net purchasers by Sh13.94 billion.

The increased international investor demand has raised the prices of select blue-chip stocks.

Last month alone, foreign investors made purchases worth Sh7.06 billion against sales of Sh2.72 billion meaning that they pumped in Sh4.335 billion, the highest monthly net purchases by foreigners in more than three years.

The increased foreign investment has also been partly driven by a search for higher returns than the potential gains on other investments around the world and in their home countries.

As at the end of last month, foreign investor participation stood at 46.45 per cent, having fluctuated between 43 per cent and 55.23 per cent throughout the year.
Einstein Kihanda, chief Investment Officer of ICEA Asset Management said that the market was coming from a low point after the slump in 2011 which was marked by high inflation and a volatile shilling.

He said favourable weather this year has also helped the recovery.

“Global oil prices have been relatively stable and as inflation declined, interest rates continued to fall and investors started looking at the stock market as an option. We have also seen some strong earnings. Prices had dropped and investors saw value,” said Mr Kihanda.

He, however, said that going forward, activity at the market will depend on how the country navigates the elections.

The Kenyan currency stabilised after the rate of inflation started dropping following a move by the Central Bank of Kenya to push up interest rates among other measures, mopping up excess money that was driving demand in the economy.

The Central Bank Rate currently stands at 11 per cent from a high of 18 per cent in January. The rate of increase in prices of basic goods and services last month stood at 3.20 per cent from a high of 19.72 per cent in November last year and the exchange rate has remained between Sh84 and Sh86 this year.

Short-term money market and fixed income interest rates have also dropped and investors have found stocks with high dividend yields more attractive than the less risky government securities.