Foreign investor trading activity at the Nairobi Securities Exchange (NSE) fell by half last week as concerns over the effect of tighter Covid-19 restrictions in China hit global markets and pushed capital into safe havens.
The investors accounted for 28.9 per cent of the NSE’s weekly traded turnover of Sh1.28 billion, down from 58.9 per cent of the previous week’s turnover of Sh1.44 billion.
Last week, the protests across China over the country’s strict zero-Covid policies rattled global markets as concerns grew over the effect of possible unrest on the world’s second-largest economy and the leading manufacturing hub.
Such jitters filter through to smaller markets such as Kenya’s in the form of capital flight to the larger economies like the US, which are seen as safe havens for investors.
Analysts reckon that investors have also fretted over the availability of dollars in the market should they wish to exit.
This has slowed external inflows onto the markets, while those holding stocks have delayed sales.
“There has been a lack of activity from both sides – local and foreign investors - in the equities market. Dollar availability in the market means foreign investors are not re-investing dividends or bringing in new money... There has been quite an activity on the bonds side, especially the infrastructure bonds which do compete for the same local money,” said Muathi Kilonzo, head of equities at EFG Hermes Kenya.
These concerns have added to an already difficult period for the local equities market, which was already under foreign capital flight pressure due to the US Federal Reserve raising its benchmark rate to a 14-year high of 3.75-4.0 per cent as the world’s biggest economy battles high inflation.
The Fed has raised short-term borrowing costs faster this year than any time since the 1980s to take the heat out of the economy and ease price pressures.
The benchmark US 10-year bond rate — a closely watched gauge of market inflation expectations over the next decade — has climbed to 3.51 per cent, up from 1.52 per cent at the start of the year.
The dollar has also gained on almost all other currencies across the globe, effectively making non-US assets less valuable for foreign investors who have to factor in currency losses when booking their gains from an investment.
This has had a negative effect on stocks across the globe as investors shift their capital to the US for safety and protection against erosion.
Locally, the effect of this capital flight has been seen in the share prices of large blue chips whose activity is principally supported by foreign investor deals.
The four largest stocks by market capitalisation at the NSE—Safaricom, Equity Group, KCB and EABL— which account for 70 per cent of the total investor wealth at the bourse, have shed between 0.6 and 4.3 per cent of their valuation in the past one week as a result of low demand and trades by foreign investors.
Overall, the market capitalisation or paper wealth loss for the stock market stood at Sh72 billion in the past two weeks, with nearly half of these losses (Sh31.2 billion) recorded in yesterday’s trading session.
“It takes the big ticket size investments which in our market come from foreigners to sustain a price rally. If locals are driving the market they can’t sustain prices,” said Wesley Manambo, an analyst at Genghis Capital.
Last month, foreign investors withdrew a net of Sh890 million from the local market, taking their net outflows for the year to Sh22.3 billion.
Since the beginning of the year, investor wealth at the NSE has dropped by Sh698 billion, to stand at Sh1.938 trillion, more than wiping out the gains the market made last year when paper wealth rose by Sh260 billion to Sh2.59 trillion.
This has coincided with a general decline in foreign participation compared to previous years when the share of traded turnover of these investors would go to as high as 80 per cent. The average for the first nine months of this year, as per data from the Capital Markets Authority (CMA), is 53 per cent.
