Foreign investor outflows are expected to continue defining the performance of the Nairobi Securities Exchange (NSE) in the second half of 2023.
The expectations by analysts are, nevertheless, against a recent turn in the direction of portfolio flows by foreigners at the Nairobi bourse who recorded the first net inflows in more than a year last month.
Analysts at AIB-AXYS Africa see negative market sentiment and continued monetary policy tightening in advanced economies keeping foreign investors away.
“We expect further foreign investor sell-offs in the second half of 2023, albeit at a slower rate, driven by continued negative investor sentiment on emerging and frontier markets as well as a negative local currency outlook,” the analysts noted.
“The continued hiking of benchmark rates in developed markets has made returns more attractive and this is likely to drive further foreign exits.”
Additionally, hard currency scarcity and low returns in contrast to other asset classes are expected to further subdue market activity.
Returns from both T-bills and bonds are expected to continue edging up as investors continue to demand a premium return in the pursuit of higher risk-adjusted returns in the face of runaway inflation as sustained exchequer funding needs.
“We expect T-bonds to touch a near 20 percent, especially on the issuance of longer tenures,” the analysts added.
The NSE remained at near bear territory in the opening half of the year with returns on the All Share Index and the NSE 20 index on a year-to-date basis standing at losses of 16.06 and 6.04 percent respectively.
The market’s capitalisation likewise fell below the Sh2 trillion mark to Sh1.94 trillion mainly from accelerated foreigner sell-offs.
Last month marked some respite for the market as foreigners bought a net of Sh242.2 million worth of shares to mark the first positive flows from the class of investors in 14 months since March last year.
Analysts at EFG Hermes observed improvements in the foreign exchange market mirrored by the increased availability of US dollars, which had helped attract foreign investors back to the bourse.
Depreciation of the local unit has signalled adjustments in the country’s foreign exchange regime where the shilling has settled down to ‘realistic levels’.
