Offshore investors have significantly slowed down their exit from the Nairobi Security (NSE), selling off a narrower Sh1.6 million worth of shares in August.
The reduced foreigners’ selloff last month contrasts with wider sales of Sh531 million in July at the height of countrywide protests against new taxation measures in the shelved Finance Bill 2024 and subsequent credit rating downgrades on Kenya.
Analysts have attributed the reduced exits to the pricing of interest rate cuts in the US which is expected to spur investments in frontier and emerging economies such as Kenya.
“The very fact that we have seen a decline in selloffs shows that investors are pricing in expectations for interest rate cuts in the US which would reduce the opportunity cost from betting against assets in advanced economies,” Standard Investment Bank Senior Research Associate Wesley Manambo stated.
The US Federal Reserve is expected to commence interest rate cuts this month supported by a temperance in inflation.
Lower interest rates in advanced economies usually prompt foreign investors to favour investing in the rest of the world which presents enhanced returns in comparison to home markets.
The entry and exit for foreigners at the local bourse are usually critical to the direction of market performance based on their high level of participation.
The average foreign investor participation in the second quarter (April-June 2024) was 57.29 percent, albeit lower than a rate of 60.31 percent in the first quarter.
Foreigners have been net buyers of NSE stocks on a year-to-date basis with a buy position of Sh112 million as at the end of August following three consecutive months of entry between April and June.
The net buying position across the first eight months of the year has been anchored on the improved availability of foreign exchange which has allowed the foreigners freedom to enter or exit the market along with a better performance of the bourse.
Interest rate cuts by the US and other advanced economies are expected to incentivize further buying by foreign investors going to the end of 2024.
Such an outcome would be welcome for a market that has seen foreign exits in the last four consecutive years from a combination of shocks including the pandemic in 2020 and most recently, the elevation of interest rates in advanced economies.
“We should see increased interest from foreign investors going forward or an even greater reduction in sell-offs once the US cuts interest rates,” Mr. Manambo added.
The high turnover by foreign investors has largely defined the direction of the NSE despite them holding a lesser quantity of listed stocks in contrast to local institutional and individual investors.
While the latter groups may hold more stocks, limited activity- buying and selling reduces their influence on share price movements.
Interest rate cuts by the US and other advanced economies are expected to incentivise further buying by foreign investors going to the end of 2024.
Such an outcome would be welcome for a market that has seen foreign exits in the last four consecutive years from a combination of shocks, including the pandemic in 2020 and, more recently, the rise of interest rates in advanced economies.
“We should see increased interest from foreign investors going forward or an even greater reduction in sell-offs once the US cuts interest rates,” Mr Manambo added.
The high turnover by foreign investors has largely defined the direction of the NSE, even though they hold a smaller number of listed stocks compared to local institutional and retail investors.
While the latter groups may hold more stocks, their limited activity - buying and selling - reduces their influence on share price movements.
