Foreign investors at the Nairobi Securities Exchange (NSE) cut the number of shares they hold at the bourse by 360 million in the nine months to September, reflecting the sustained flight of capital from emerging economies to the West in the period.
The Capital Markets Authority in its market soundness report for the third quarter shows that foreign individual and institutional investors held 16.84 billion shares at the bourse at the end of September, down from 17.2 billion at the beginning of January.
This is indicative of these investors selling more than they were buying in the period, which resulted in a net outflow of Sh19.5 billion on their portfolios.
The NSE has 97.4 billion issued shares in total, out of which 82.7 percent is in the hands of local and East African investors. Safaricom is the biggest stock in the market in terms of issued shares, with 40.06 billion units.
Foreign investors, while holding less than a fifth (17.3 percent) of the issued stock at the market, have been dominating trading at the bourse, accounting for more than 50 percent of turnover on most months, although this fell to 35.9 percent in September as they shifted their attention to the US market.
The developed markets are currently battling high inflation that has forced their central banks to adjust rates upwards. For smaller markets like the NSE, the pullout of foreign capital is damaging due to the relatively low trading of equities by local investors.
The effect of the foreign selling has been reflected in the falling valuations of the NSE's largest companies, which include Safaricom, Equity Group, KCB and EABL which by virtue of good liquidity and solid fundamentals have been a favourite of external investors.
The market capitalisation of the bourse has as a result fallen to Sh1.99 trillion from Sh2.636 trillion at the start of the year.
The CMA said in its soundness report that the NSE is leaning on new initiatives such as day trading to stimulate higher local participation in the bourse, which would unlock latent value in the market considering that these investors hold over 80 percent of shares issued.
The proposal by the government to utilise the market for privatisation plans for parastatals is also likely to stir the market back to life through initial public offerings that introduce new generations of investors to stocks.