Foreign investor activity at the Nairobi bourse has plummeted to below 50 percent, contributing to the market weakness that has seen investor wealth drop by Sh176 billion in the three months to March.
A report by the Capital Markets Authority (CMA) shows that foreigners have been withdrawing from the market, with their participation reported at a record low of 47.89 percent in March.
Foreign investors have previously dominated trade on the Nairobi Securities Exchange (NSE) #ticker:NSE , providing large-scale demand for blue-chip stocks.
“The market has historically recorded foreign investor participation in the range of 60 percent to 70 percent between 2019 and the first half of 2021,” the report says.
“However, with increased global economic shocks, the market has suffered a loss in its foreign investor participation levels in recent months.”
Reduced activity by foreigners will hurt capital inflow besides fees and commissions charged by stockbrokers and the bourse operator.
The regulator says the shrinking participation by foreigners reflects the risk posed by increased capital outflows, adding that the country should counter this by encouraging more Kenyans to invest in the market.
Market capitalisation on the first trading day this year stood at Sh2.6 trillion but had dropped to Sh2.4 trillion at the end of the first quarter, representing a decline of Sh176 billion which has been attributed largely to foreign sales.
According to the CMA report, the economic fallout from the Russia-Ukraine conflict was a major catalyst in the latest exodus by foreigners.
“The withdrawal of the blue-chip stock which is common with foreign investors has pushed the bourse further down to a seven-month low,” the report says.
Foreign investors’ reduced participation at the NSE comes at a time when most local investor accounts have gone dormant following a long-running bear market, several corporate bankruptcies, and fraud.
The Central Depository and Settlement Corporation (CDSC) says only 61,000 of the 2.03 million share accounts have participated in trading over the two years, representing a three percent share.