Foreign investors have dumped over four billion Nairobi Securities Exchange (NSE) shares in multi-year selloffs, which have left a more volatile bourse and low stock prices.
An analysis of data from the Capital Markets Authority (CMA) shows foreign holdings of listed equities fell by 4.3 billion units between November 2019 and November 2022.
Liquidation of holdings has been traced by analysts to multiple adversities including the Covid-19 scourge, the interest rate jumps and at present foreign exchange rate crisis.
NCBA Group has seen the sharpest drop in foreign investors' holdings with foreign ownership of the stock falling by 71 percent from 1.29 percent to 0.37 percent or an equivalent of 6.1 million shares.
Other leading counters with sharp liquidation in foreign ownership include KCB (59 percent), Express Kenya (54 percent), Olympia Capital (54.6 percent), Kenya Re (58 percent) and Centum Investment (39.2 percent).
While local institutional and individual investors have stepped in to purchase the disposed of shares, the exit of foreign investors is seen as detrimental to the market with offshore participants seen as the price driver for the bourse based on their historically high rate of turnover on which price discovery for listed equities is derived.
Average foreign investors' participation for instance stood at 54.84 percent in the quarter to December implying that they represent over half of the activity at the bourse despite their lower stock holdings.
Conversely, local institutional and individual investors largely buy and hold stocks, especially the latter frustrating price discovery opportunity at the NSE.
“Unlike the local retail investors, most foreigners keep restructuring their portfolio. The reduced holdings by foreign investors is, therefore, negative for the NSE as it is a significant driver for stock price falls which contributes to high volatility in the market,” said Solomon Kariuki, a research analyst at AIB-AXYS Africa brokerage.
The flight by foreign investors has also been traced to a lack of new investment opportunities in the bourse with the NSE seeing its last initial public offer over eight years ago.
Lower foreign holdings of NSE-listed equities have coincided with three consecutive years of net portfolio outflows by foreigners.
Secondary data from the CMA shows net portfolio outflows by foreign investors combined to reach Sh63.2 billion in three years between 2020 and the end of 22 with the highest sell-offs coming in the pandemic year.
Exits by foreign investors have been accelerated this year by Kenya’s foreign exchange woes with challenges in accessing foreign currency in the country.
With dollar shortages biting and the local currency depreciating sharply in the year to date, foreigners have opted to cut their losses now rather than later if foreign exchange woes might be worse.
“A foreign investor would rather leave now than wait six months down the line when the currency situation may be worse. Foreign investors have decided to even leave dividends on counters such as BAT and Safaricom on the table. They have struggled to execute sale orders when the supply of dollars has been limited to say $10,000 a day,” added Mr Kariuki.
For analysts at Sterling Capital, foreign investor sentiment has been on the decline since 2015 when capital gain taxes came into effect with the negative views being exacerbated by the 2016 interest rate caps which trimmed interest margins for banks which represent key NSE stocks.
According to analysts, the emergence of foreign exchange woes has seen Kenya missing out on returning flows by foreign investors to emerging and frontier markets.
“A foreign investor can get their money in but can’t get it out in a sense and so even with the return of capital to frontier and emerging markets, the flows have not been coming to Kenya,” the analysts noted.
Amid reduced foreign holdings in NSE equities, a few counters have proven to be outliers with the most notable being Absa Bank Kenya, which has seen a more than eight-fold growth in foreign ownership with the offshore investors now holding a 70.1 percent in the listed lender or an equivalent 3.8 billion shares.