Foreign investors cut their new exits from the Nairobi Securities Exchange (NSE) last year as a stronger shilling turned the market in their favour and global index provider Morgan Stanley Capital International (MSCI) increased the number of local firms on its listing.
Market data shows that foreigners made net sales of Sh16.5 billion last year, down from Sh19.08 billion in 2023.
The 2024 total was, however, inclusive of a block transaction of about Sh14.3 billion on the Bamburi Cement stock done in the buyout of the company by Tanzanian conglomerate Amsons Group.
Swiss firm Holcim was the majority owner of Bamburi with a stake of 58.6 percent or 212.7 million shares, which it sold to Amsons for Sh13.8 billion at the buyout price of Sh65 per share.
Excluding the one-off Bamburi transaction, foreign investors made net sales of Sh2.4 billion in the year.
Net foreign exits had remained high at the NSE between 2020 and 2023—cumulatively standing at Sh82.4 billion— due to a mix of factors which included a flight of capital from emerging and frontier markets to the US, where interest rates rose significantly.
A weakening shilling also amplified losses for foreign investors in the local market, cutting the numbers looking to bring in new capital.
Foreign investors normally exchange their dollars for shillings when entering the local market, and buy back dollars for repatriation upon selling their shares.
A depreciating shilling, therefore, hands them an exchange loss when valuing their returns, while an appreciation of the shilling boosts the dollar value of their gains.
Last year, the shilling gained 21 percent on the dollar, meaning that a foreign investor who was booking their profits ended up with a higher amount in dollars upon conversion.
The NSE recorded a 34.8 percent or Sh500.7 billion jump in investor wealth to Sh1.9 trillion in 2024. Dollarised returns for top stocks at the market as measured by the MSCI meanwhile stood at 65.3 percent, indicating the extra gains on hand for foreign investors due to the shilling’s gains.
Sentiment around the market and the currency improved from the second quarter of 2024 after the resolution of dollar supply hitches in and successful refinancing via a partial buyback of the $2 billion Eurobond that was maturing in June.
This saw the shilling, which had depreciated to an all-time low of Sh161.50 to the dollar rally to close the year at an average of Sh129.29.
Visibility of NSE stocks among foreigners was also helped via MSCI move to increase the number of local stocks included on its frontier and small caps indices from four to 11 after the dollar supply issues were resolved.
Safaricom, Equity Group, EABL, KCB Group and Co-operative Bank of Kenya are listed on the MSCI frontier markets index, while BAT Kenya, KenGen, Kenya Re and DTB Group, Carbacid and Bamburi Cement are on the MSCI frontier markets small cap index.
The MSCI had frozen reviews of its Kenyan index between August 2022 and May 2024 due the forex crisis, effectively stopping the introduction or removal of constituent companies and adjustments on their weighting within the index.
The reviews are meant to give investors an up-to-date picture of the state of an exchange, allowing them to make informed investment decisions.
