The continued foreign exchange access strife is expected to continue weighing on the performance of the Nairobi Securities Exchange (NSE) this year.
This is despite the market offering an attractive entry point for new foreign investors as NSE stock prices remain sharply discounted.
“We think a re-rating [stock price jumps] is unlikely in the short term due to foreign investors remaining weary of the country’s forex challenges,” noted analysts at investment bank EFG Hermes.
The jitters by foreign investors are expected to deny the NSE new dollar inflows as the foreigners hold a wait-and-see approach.
Meanwhile, local institutional investors have maintained a bias for government securities in the backdrop of rising yields which leaves the door open for local retail investors to build positions in the stock market in counters such as banks as the former wait.
“We think the attractive valuation and positive earnings outlook presents an entry point for local retail investors to bulk positions in the banks as other investors adopt a ‘wait and see’ approach,” EFG Hermes said.
In December, the analysts at EFG Hermes blamed forex exchange access challenges for the continued portfolio outflows by foreign investors out of the NSE especially in the ending fourth quarter when comparable emerging and frontier markets were registering net inflows.
According to an analysis of portfolio inflows by foreign investors to frontier markets in November, Kenya did not receive any of the Sh19 billion ($150 million) inflows.
The analysts have previously doubled down on the country’s forex exchange access difficulties which they say manifests itself in dollar repatriation challenges for foreigners invested in the NSE.