Dollar availability boosts investor inflows at Nairobi Securities Exchange

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An improvement in the foreign exchange market characterised by the increased availability of US dollars has helped attract foreign investors to the Nairobi Securities Exchange (NSE), analysts at advisory firm EFG Hermes say.

According to them depreciation of the Kenya shilling has signalled adjustments in the country’s foreign exchange regime, which has allowed the local currency to settle down to ‘realistic levels’.

The reset has been interpreted as having the effect of partly resolving access to foreign exchange with previous difficulties having seen foreign investors staying off the local market.

Simon Kitchen, the head of strategy at EFG Hermes says this has allowed foreign investors to repatriate funds from the country leading to the switch in portfolio flows.

“The weaker shilling really helps. I know for instance in the past year we had some foreign investors who struggled to get their money out. That is the first positive reading we have seen,” he said.

“The forex market is working better and is pulling back foreign funds into the market.”

In June, foreign portfolio flows at the NSE turned positive for the first time since March last year as investors bought a net of Sh242.2 million shares.

The investors marked a return with a focus on discounted blue-chip counters including EABL and BAT.

Trades by foreigners were also seen in counters such as Eveready and NBV.

Foreign investor flows had remained negative for the last 15 months as offshore investors offloaded local stocks for safe-haven assets in the backdrop of global shocks.

The raising of interest rates by the Federal Reserve, for instance, incentivised investors to reallocate their portfolio investments in advanced economies and away from the frontier and emerging markets.

In some instances, investors have quit the equities market for fixed income in search of stable returns.

Foreign investors were cumulatively net sellers through six months of the year to June at Sh15.3 billion with the majority of the deals occurring in March.

In 2022, foreign investors dumped stocks worth Sh24.4 billion from the NSE.

Net portfolio flows by foreign investors have been negative in four of the last five years with the last positive flows covering a calendar year coming in 2019, prior to the onset of the Covid-19 crisis which largely set off the foreigner sell-off.

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