Foreigners extend run as net buyers of shares on NSE

Nairobi Securities Exchange (NSE) logo on the trading floor. 

Photo credit: File photo | Nation Media Group

Foreign investors at the Nairobi Securities Exchange (NSE) remained net buyers for the second consecutive month in May, a first in nearly three years.

 NSE data shows that foreign net portfolio flows to the bourse stood at Sh1.49 billion in May, strengthening a trend from April when foreign investors bought Sh1 billion stocks, signifying the return of the external investors.

 The foreigners have changed tune from being net sellers, having disposed of Sh2.2 billion shares in the first quarter of this year.

 According to analysts, the NSE has become more attractive to foreign investors owing to an array of factors including the improved ranking by major world indices.

Investment research firm Morgan Stanley Capital International (MSCI), for instance, ended its caution on the difficulties of accessing and repatriating foreign exchange from Kenya in May while the Financial Times Stock Exchange (FTSE) Russell Index also lifted similar restrictions in April.

“From a foreign perspective, our markets are very attractive given the positive outlook by the FTSE and MSCI indexes. Some of the foreigners who were previously put off by the restrictions are now back as liquidity and currency risks are greatly reduced,” noted Wesley Manambo, a research analyst at Standard Investment Bank (SIB).

 “The market is turning bullish at least from a foreigner perspective as we see a build-up in foreign buys. Opportunity costs for the foreigners are bound to narrow once we see interest rate cuts happening in advanced economies to drive even more foreign inflows.”

 The return of the foreigners has anchored a rally in stock prices with the NSE all-share index, for instance, gaining by 22.6 percent to 112.98 points from 92.11 points at the end of last year.

 Insurance stocks have gained the most at an average of 18.3 percent, with Liberty Kenya Holdings rallying by 57.1 percent to trade at Sh5.80 from Sh3.69 on December 29.

Banking sector stocks have meanwhile gained by a mean of 16.9 percent, supported largely by dividend expectations after the industry’s improved first-quarter earnings.

KCB Group has led the banking sector rally, gaining 62.3 percent to trade at Sh35.55 as of May 31 from Sh21.90 at the end of last year.

Foreigners are expected to remain net buyers at the NSE as central banks in advanced economies are tipped to start cutting interest rates, which would make investments in emerging and frontier economies more attractive from an interest-rate differential perspective.

The return of foreigners to the bourse is expected to generate a broad improvement in stock prices in a bullish market.

“A rising tide will lift all boats. If you look at the NSE, almost all stocks are trading at discounts, representing entry opportunities to investors,” added Mr Manambo.

 Foreign exchange unavailability in the domestic market and rising interest rates in advanced economies combined to drive foreign selloffs from the bourse last year as the offshore investors disposed of stocks valued at Sh21.2 billion.

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