Foreigner investors pulled out Sh178.2million from the Nairobi Securities Exchange (NSE) last month, marking a fifth straight month of withdrawals and stretching a run of capital flight from the previous year.
The continued sell-offs are linked to a disparity in returns where investments in advanced economies yield greater gains than those in emerging and frontier economies after notable interest rate increases by their respective central banks.
Last year, foreigns remained net sellers at the NSE, marking Sh21.2 billion in net portfolio outflows, according to data from the Capital Markets Authority.
The bulk of the selloffs took place in March at Sh10.6 billion while flows marked a positive surprise in June and August as the foreigners turned buyers, purchasing Sh113 million and Sh672 million shares respectively.
While major central banks have indicated imminent interest rate cuts which could cushion foreign flows back to markets such as Kenya, senior research analyst at AIB-AXYs Africa Ronny Chokaa says the interest rate differential remains in favour of developed markets even as competition among emerging and frontier economies further dictate the direction and destination of flows.
“From our point of view, we think that interest rate differentials currently remain in favour of developed markets, and as such, we see more runway for further tightening of the policy rate to spark a reversal. However, competition from active bourses across peer frontier and emerging markets has also fueled intense rivalry for capital, especially in the wake of disruptive technologies such as AI,” he noted.
The continued exit of foreigners has served to extend a long run of low stock valuations at the NSE/ bear run as foreign investors determine the direction of the market based on their significant market turnover.
Last year, the NSE recorded a 27.5 percent fall in paper wealth amounting to Sh547 billion with the bourse’s market cap closing 2023 at Sh1.439 trillion.
