Foreign investors hastened their exit from the Nairobi Securities Exchange (NSE), recording a net selling position of Sh1 billion in February.
The February sell-off is larger than the Sh106.7 million worth of net exits in January, according to data from the NSE.
The continued flight of foreign investors from the local bourse has come against some significant improvements in the operating environment, including a rally by the Kenyan Shilling against major world currencies, which has improved the performance of the bourse in US dollar terms.
At the same time, the NSE nearly doubled its turnover in February as the value of shares traded rose by 82 percent to Sh4.3 billion while the issuance of a new Eurobond by the government eased jitters concerning Kenya’s ability to meet the maturity of its debut sovereign bond in June.
According to analysts, however, several factors, including the allure of a better return in home markets and attractive government securities, have seen foreigners keep off local equities.
“For actively trading foreign investors, the focus is still on equities in their home markets with no interest cuts from central banks in advanced economies forthcoming in the short run,” said Wesley Manambo, a research analyst at Standard Investment Bank.
Unlike equities, government debt instruments have profited from foreign investor interest with the Central Bank of Kenya (CBK) for instance indicating high foreigners participation in the recently issued infrastructure bond.
The bond, whose average weighted return was set at 18.46 percent, currently beats the dividend yield from all NSE counters, making the paper comparatively more attractive to investors than local stocks.
The improved foreign exchange liquidity has meanwhile enabled foreigners seeking to exit the local bourse to obtain adequate hard currency to make the departure.
Head of equities at EFG, Hermes Kilonzo, notes that the improved turnover at the NSE has also enabled foreign investors to bring greater volumes to market for sale, increasing the foreigners' net selling position during the month.
“If total traded volume is low, then it means the stocks a foreigner can bring to market for sale are also low hence limiting the outflow position. What we have seen in February is market liquidity going up,” he said.
The exit of major American investment management firm FMR LLC, which trades as Fidelity Institutional Asset Management, has also had a significant impact on the foreigners’ portfolio flows.
The institutional investor has dumped 600 million Safaricom shares since September 2022 as a protest against delays in the telco's repatriation of dividends.
February marks the sixth straight month of foreigners exiting from the NSE with the last month of net inflow being in August 2023.
The allure of local equities for foreign investors has remained dampened by poor sentiment, including the freeze on new Kenyan firms from joining the Morgan Stanley Capital International (MSCI) index over dollar shortages and financial turbulence.
Morgan Stanley’s advisory influences major decisions by the global investing community looking at investing in emerging and frontier markets such as Kenya.
Morgan Stanley noted in November last year that its decision was based on feedback from market participants who noted deteriorating forex liquidity in Kenya which made it difficult for foreign investors to repatriate capital from the market.
According to data from the Capital Markets Authority (CMA), foreign investors closed 2023 with a net selling position of Sh21.2 billion, marking the fourth straight year of exits by offshore investors from the NSE.
Foreigners exits hit a high of Sh28.6 billion in 2020 with the record retreat being attributed largely to the pandemic fallout.
