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Sh4.6bn foreign outflows jolt stock market rally
In the last three months, the majority of stocks that gained more visibility to foreign investors courtesy of listings on globally watched Morgan Stanley Capital International frontier market indices and the Financial Times Stock Exchange Russell Index have recorded double digit price gains.
Foreign outflows from the Nairobi Securities Exchange (NSE) have hit Sh4.67 billion over the last three weeks, as investors locked in profits gained in the recent blue chip price rally at the bourse.
The bulk of the net foreign sales were recorded last week at Sh2.96 billion, adding to the Sh527.3 million sold in the trading week ending September 12, and Sh1.17 billion in the five days to September 5.
The most sold counters last week were Equity Group, which had net outflows of Sh943.5 million, Safaricom at Sh761.8 million, KCB Group at Sh532.4 million and Absa Bank Kenya at Sh325.9 million.
Last week’s exits saw the NSE record a decline in valuation of Sh89.6 billion or 2.9 percent to Sh2.72 trillion, compared to the previous week’s market capitalisation of Sh2.81 trillion.
In the last three months, the majority of stocks that gained more visibility to foreign investors courtesy of listings on globally watched Morgan Stanley Capital International frontier market indices and the Financial Times Stock Exchange Russell Index have recorded double digit price gains.
This has made them prime candidates for profit-taking by investors, who can thereafter reinvest their gains across other frontier markets, or hold for reinvestment back into the NSE when prices fall.
The selling activity follows sustained net purchases in previous weeks, which resulted in a net inflow position of Sh1.6 billion in August, the highest monthly inflow in four years.
“We have seen heightened profit-taking on a number of counters, which are trading at elevated prices compared to the lows seen a couple of years ago. Given their wider view across markets, the foreign investors could be redirecting some of the capital to other frontier markets,” said Wesley Manambo, a senior research associate at Standard Investment Bank.
“However, we do not anticipate the outflows to be sustained beyond the short term, following the US Federal Reserve rate cut last week and the expectation of further cuts later in the year, which should ideally redirect some of the cash and fixed income assets in the US to frontier and emerging markets,” he added.
In its rate setting meeting last week, the US central bank brought down its base rate by 0.25 percentage points to a range of 4.0 to 4.25 percent, which was the first cut this year. It also signalled that it will be making two more cuts before the end of the year.
Lower rates in the world’s largest economy have the effect of reducing the attractiveness of US bonds and the dollar, unlocking outflows into other markets that offer competitive returns in comparison.
In the NSE, the overall year-to-date investor wealth gain of 41 percent or Sh794 billion marks the market as one of the top performers among frontier and emerging markets, which combined with a stable shilling that reduces risk of forex losses, makes it an ideal option for foreign investors.
Of the Kenyan companies, Safaricom, Equity Group, EABL, KCB Group, Co-operative Bank of Kenya and Standard Chartered Bank Kenya are listed on the MSCI frontier markets index, while BAT Kenya, KenGen, Kenya Re, Kenya Power, DTB Group, Carbacid and HF Group are on the MSCI frontier markets small cap index.
Some of these counters, like KenGen, Kenya Power and Kenya Re have reported triple digit gains over a one-year period, partly due to their shares coming from low nominal prices.
