Foreign investors are shying away from buying shares at the Nairobi Securities Exchange in the wake of rising returns from the US, United Kingdom, China, and Japan markets.
The foreigners have been net sellers—sold more shares than they bought—in seven of the nine months to September, reflecting their reduced appetite for the Kenya bourse.
Returns from stock markets in advanced economies have surged on the back of improved corporate earnings and sustained investors on tech stocks super-charged by their exploits in Artificial Intelligence (AI), enticing investors that sought profits in risky emerging markets.
The S&P 500 index, which covers the top 500 companies in the US, has gained by 13.2 percent since the start of the year while London’s FTSE 100 index is up 13.7 percent and Japan’s Nikkei 225 has returned 12.6 percent in the period.
This has seen the foreigners ignore the 43.1 percent gain that the Nairobi All Share Index (NASI) has chalked since the start of the year amid the view that advanced markets have a lower risk profile when compared to frontier countries like Kenya.
The offshore investors remained net sellers through the same period, offloading NSE stocks valued Sh7.4 billion.
Analysts reckon that the continued positive returns from global markets such as the US have stolen the appeal of the NSE amid the recovery and jump in share prices.
“Positive returns year-over-year in developed markets make it more difficult to justify investing in Africa from a risk/reward perspective,” noted analysts at Sterling Capital, a stock brokerage.
US stocks recently marked three-year anniversary of the current bull market which is powered in part by economic resilience and gains in mega cap tech giants such Meta, Microsoft and Nvidia.
The three big tech stocks, in addition to Alphabet, Amazon, Apple and Tesla, have been labelled the magnificent seven for their impressive gains.
The market rally for US stocks is despite investor concerns of a slowing economy from the impact of US President Donald Trump's global trade tariffs and fear of over-valuations.
The market closed at new record highs in September even as new concerns emerged with the US government shutdown which could result in disruptions, including staff layoffs.
In Japan, the stock market has been on a record-breaking run since start of this year after ending more than three decades of stagnation.
The recovery is hinged on reforms, including improved corporate governance, global demand of Japanese goods and services from a weaker currency (the Yen), the return of foreign investors and the end of deflation.
The factors have combined to push Japanese stocks higher with the country’s main index- the Nikkei 225 surpassing its previous peak set in 1989.
In Kenya, foreign investors have been largely absent from the market recovery that commenced in 2024, implying that local institutional and individual investors have anchored NSE gains this far.
The apathy by foreign investors to NSE listed stocks is despite the local bourse handing the offshore traders the third highest dollarised returns among African markets tracked by the Morgan Stanley Capital International (MSCI) frontier and emerging market indices at 38.4 percent.
Last year, the foreign investors remained net sellers of NSE stocks despite the market posting the highest dollarised returns among peers as NASI gained by 34 percent across 2024.
In the last six years, foreign investors were only net buyers over a calendar year in 2019, according to data from the Capital Markets Authority.
The historical capital flight by foreigners around the continent is tied to hurdles, including currency depreciation and weak fiscal policies.
“Capital flight to hard currency denominated assets over the past few years has largely been driven by a negative sentiment toward Sub-Saharan Africa as a whole due to currency depreciation, the Covid-19 pandemic and inconsistent policies negatively impacting business,” analysts at Sterling Capital added.
The brokerage expects continued outflows due to the relatively more attractive returns offered in other equity markets.
Heightened global volatility from US tariffs policies is, however, seen as a likely driver to foreign investors returning to frontier markets such as Kenya.
