Foreign investors for the first time in six years recorded a net outflow position at the Nairobi Securities Exchange (NSE) in 2015 thanks to selloffs on the larger counters.
The foreigners last recorded a full-year net outflow position in 2008, when the slowdown in the economy followed the post-election violence amidst panic over that year’s global financial crisis that precipitated capital flight.
Data compiled by Standard Investment Bank (SIB) shows that the foreign investors withdrew a net Sh670 million from the market in 2015, a huge reversal having recorded net inflows of Sh3.53 billion in 2014.
Large-cap counters dominated in net outflows, with a number of medium-cap counters taking inflows.
Analysts said that the stock market’s lag behind other investment classes, such as fixed income, in returns was also a reason for the external diversification from equities, in addition to the redistribution activity within the market itself that favoured smaller counters.
“These investors usually target investments where they can see a value proposition or upside, and if for example they see this in the mid-cap counters then they would be better off turning there,” said Sterling Capital analyst Eric Munywoki.
Equity Holdings was the leading counter in net sales at Sh4 billion, followed by Safaricom at Sh2.24 billion, East African Breweries Limited (EABL) at Sh1.33 billion, Athi River Mining at Sh544 million and Kenya Commercial Bank (KCB) at Sh492 million.
On the other hand, the foreign investors had net buys of Sh3.89 billion in British American Tobacco (BAT) Kenya, Sh1.47 billion in the NSE stock, Sh1.1 billion in Cooperative Bank and Sh764.9 million in CfC Stanbic.
The bulk of the outflows came in the first half of the year when there was uncertainty over the effect and implementation of the capital gains tax.
Equity’s share was dominated by block trades during the exit from the stock of UK private equity fund Helios Partners, which sold its 24.99 per cent stake in the bank, partially through the sales at the securities exchange.
Foreign investors accounted for 62 per cent of the total turnover of Sh209.2 billion last year in contrast to 2014 when they accounted for 51.1 per cent of activity and local investors 48.9 per cent.
“Minimal capital appreciation was witnessed during the year on various counters including banking stocks which made active trading unattractive,” said Genghis Capital analyst Mercyline Gatebi.
Some of the foreigners were also booking profits from their heavy investments made in the preceding five years, and also liquidating in order to protect their investment in a market that turned bearish starting March.
African markets saw sustained outflows last year as investors shifted their portfolios to developed markets, especially the US. The attraction of the US was helped by the US Federal Reserve decision to start increasing its base lending rate. Real value loss due to depreciation of the shilling and other African currencies was another push factor for foreigners.
According to SIB, Nigeria had seen net outflows of $275.6 million (Sh28.2 billion) from its stock exchange through the first nine months of 2015.
The lower current lower stock prices are likely to aid in turning the flows inward going forward according to Mr Munywoki.
“The growth rate in emerging markets is still higher than that of developed markets, and so capital will find its way back to tap this potential. Capital may come back to the large cap counters in the NSE because now prices are lower and there is upside potential,” he said.
Africa-focused funds seeking a cheap entry point are seen as the likeliest source of inflows this year.