The share of trading activity at the Nairobi Securities Exchange (NSE) attributed to foreign investors fell to a 21-month low in December 2024, highlighting the impact of increased flows of local capital to a recovering equities market.
Data from the Capital Markets Authority (CMA) shows that foreigners market participation stood at 35.49 percent in December, having come down progressively down from 62.84 percent in January and marking the lowest participation level since March 2023 (30.01 percent).
At the same time, local investors increased their activity in the market, backing large price gains among smaller cap stocks such as Kenya Power, East Africa Portland Cement and KenGen, whose prices were previously dormant.
In the first four weeks of this year, foreign investor participation has averaged 40.4 percent (local at 59.6 percent). “Increased activity in the equity market by local retail and institutional investors has extensively compensated for the reduced foreign activity in the equity market,” said the CMA in its market soundness report for the fourth quarter of 2024.
“Initiatives such as day trading, and margin trading together with necessary trading incentives/concessions will remain critical in enhancing domestic investor activity at the Nairobi bourse hence boosting equities turnover.”
Retail investors were attracted by the resumption of dividend payments by Kenya Power and EAPC, while KenGen also raised its payout after these firms reported improved earnings for the year to June 2024.
Bank stocks also recorded double digit price gains in 2024 after reporting record profits, which signalled higher dividends for the period.
Their increased appetite for equities was also driven by reducing returns from fixed income securities as interest rates declined markedly in the last quarter of the year in line with the Central Bank of Kenya’s rate cut from 13 to 11.25 percent between August and December.
Net returns from Treasury bill rates have now fallen to single digits from highs of 16 percent in October 2024, with investors responding by reducing their exposure to these papers in new issuances.
This helped rebalance the activity in a market where foreign investors had dominated trading for a number of years, despite holding only a fifth of the issued shares at the NSE.
Foreign activity has largely been confined to the large blue chip stocks such as Safaricom, Equity Group, KCB and EABL, which have the necessary liquidity to support large trades and solid fundamentals which see them pay dividends consistently.
On the other hand, smaller cap stocks see more trades from local retail investors, hence their limited price movement in the bearish years when locals largely stayed out of the equities market.
