The Nairobi Securities Exchange (NSE) shed Sh33 billion in investor wealth on Monday as foreign investors dumped equities for safe-haven assets for fear of a backlash of potential recession in the US economy.
Kenyan stocks -- that have significant exposure to foreign investors -- were among the leading laggards at the bourse on Monday, including BAT Kenya and Safaricom whose share prices fell by 4.9 percent and 4.3 percent, respectively, to close at Sh331.75 and Sh14.40.
The telco, which is the most traded counter by foreign investors, also dominated the day’s turnover after moving 12.41 million shares worth Sh178.8 million, representing 46 percent of the day’s NSE total traded turnover of Sh386.3 million.
The NSE 20 Share Index was down by one percent to 1642.76 points, while the NSE All Share Index retreated by 2.1 percent to 101.75 points. Market capitalisation, the measure of investor wealth, stood at Sh1.58 trillion on Monday.
Analysts said that the NSE was not immune to the selloffs being experienced in global markets over the last few weeks, which intensified from Friday after the US reported weaker-than-expected jobs growth in July.
As a result, the rate of unemployment in the world’s largest economy rose to a three-year high of 4.3 percent from 4.1 percent a month earlier, triggering fresh fears of a recession that could affect the Federal Reserve’s ability to cut its interest rates this year.
“The likelihood of a US recession means that rates there are likely to stay higher for longer. Therefore, investors in developing markets are likely to repatriate capital to the US,” said Wesley Manambo, a senior research analyst at Standard Investment Bank.
“The exits we have seen in recent trading sessions cut across the board on blue chips, meaning that we are looking at a systemic impact of global factors.”
Markets across Asia took a beating Monday as a result of the US concerns, with the Japan Nikkei Index falling by 12.4 percent, its worst single-day loss since 1987.
Kenya’s stock market also remains vulnerable to global shocks due to the exposure of its key stocks to foreign traders.
These investors tend to concentrate their activity on a select few stocks that have the necessary liquidity to support large trades, solid fundamentals, and a good financial track record that enables them to pay dividends regularly.
Stocks such as Safaricom, Equity Group, EABL, and KCB that are included on global indices such as the Morgan Stanley Capital International (MSCI) Kenya Index and Financial Times Stock Exchange (FTSE) Russel Index also enjoy high visibility among foreign investors, helping create demand from the external traders.
In the second quarter of the year, foreigners were positive on the Kenyan market, making net purchases of Sh2.78 billion. This helped reverse the net sales of Sh2.23 billion they had made in the first quarter of the year.
Over the last four weeks, however, they have returned to the selling side, recording net sales of Sh1.04 billion since July 1.
The positive sentiments in quarter two coincided with a period when the shilling strengthened against the dollar, which pared back the exchange losses that foreign investors were exposed to when buying into the Kenyan market.
Foreigners exchange their dollars for shillings when entering the local market, and if the currency gains between the period of entry and when they exit, they enjoy a gain when buying dollars for the repatriation of sale proceeds abroad.
