Capital Markets

Foreigners expected to make cautious return to the NSE

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Summary

  • Foreign investors are expected make a cautious return to the Nairobi's bourse this year, with an eye on rising political temperature ahead on next year’s polls working against expected demand for shares of firms with solid post-Covid prospects.
  • The return is expected to be skewed towards the Safaricom stock, which is expected to show faster post-pandemic recovery, and other firms which currently have discounted valuations.

Foreign investors are expected make a cautious return to the Nairobi's bourse this year, with an eye on rising political temperature ahead on next year’s polls working against expected demand for shares of firms with solid post-Covid prospects.

The return is expected to be skewed towards the Safaricom stock, which is expected to show faster post-pandemic recovery, and other firms which currently have discounted valuations.

Foreign investors made a record Sh28.6 billion in net sales last year from the Nairobi Securities Exchange (NSE), part of a global equities selloff due to the Covid pandemic which affected corporate performance.

Investment bank Genghis Capital said in its 2021 markets outlook that low prices currently should be a catalyst for buying activity by foreign investors, who have already been showing good appetite for the Safaricom stock in the first three weeks of the year.

This is coupled by the increase of Kenya’s weighting on the MSCI Frontier Markets Index to 9.49 percent in November 2020, should boost foreign portfolio investment inflows.

“We expect cautious foreign investor flows attracted by the discounted market and Kenya’s additional 3.2 percent weighting in the recently reviewed MSCI Frontier Markets Index and subsequent upgrade of KCB Group to the Frontier Index,” said Genghis.

“However, we see foreign investors concerned by prospects of business recovery, sovereign debt levels and likelihood of heightened political activities with a referendum in 2020 and general election in 2021.”

The uncertainties presented by the pandemic last year saw all the three indices—NSE 20, NSE 25 and NSE All Share drop by 30.2 percent, 17.4 percent and 9.3 percent respectively.

This year though, foreign investors have begun to turn to net buyers at the market, shifting the previous trend.

Data from AIB-AXYS Africa Capital shows that as at Monday, foreign inflows since the start of the year were worth Sh1.13 billion against outflows of Sh310 million.