Foreign investors have become net buyers of shares at the Nairobi Securities Exchange (NSE) #ticker:NSE for the first time in six months, signalling their intention to return to a market they have looked at with scepticism during weeks of heightened political activity.
The move helped select stocks to bounce back from lows they hit before last Thursday’s repeat presidential election and keen followers of market activity said the recovery was partly being driven by investor rush to lock in bottom prices ahead of third quarter financial result announcements.
The NSE20 Share Index has gained 4.34 per cent since the repeat presidential election, while the NSE All Share Index (NASI) is up 3.71 per cent.
Newly released market data shows that foreign investors closed October with net positive inflows, meaning that for the first time since mid-April they bought more shares than they sold.
Net foreign flows at the NSE jumped from a peak negative of Sh5.8 billion in September — the lowest it has been in two years — to a positive of Sh330 million by the end of last month, the data compiled by Standard Investment Bank (SIB) shows.
The monthly market report shows a jump in foreign investor participation at the bourse from the 50 per cent to 70 per cent of daily turnover between October 25 and October 31.
“If you look at large caps, foreign investors are slowly entering despite the ongoing political activity,” said Stella Wambugu, a dealer at SIB.
Foreign investor activity was intense on select counters, including Kenya Commercial Bank #ticker:KCB, Equity Bank #ticker:EQTY, East African Breweries #ticker:EABL and Safaricom #ticker:SCOM.
“KCB was one of the notable net (foreign) inflow counters despite a fall in price,” Ms Wambugu said.
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The Nairobi bourse has suffered a severe turnover stagnation and declining share prices after the Supreme Court annulled an August 8 election, causing jitters among investors.
The apex court’s decision caught investors back-footed and wiped out more than Sh220 billion from the market in two months.
“We have seen some good foreign inflows in the last few days,” Johnson Nderi, a corporate finance manager at ABC Capital, said. “We are bullish on the short term. In the long term we don’t know what will happen politically.”
The NSE 20 Share Index that tracks large capitalised listed firms jumped 1.49 per cent on Tuesday, a day after President Uhuru Kenyatta was declared the winner of the October 26 vote that main opposition candidate Raila Odinga boycotted.
Political temperatures have somewhat cooled down after Monday’s announcement but Mr Kenyatta’s victory could still be subject to Supreme Court scrutiny in the event a petition is filed challenging it. Kenyan law provides seven days within which the election outcome can be challenged.
A price rally since last Friday helped the main market indices close the month of October less depressed than expected.
The NSE20 index was down 0.6 per cent to 3,729.62 points during the month, while NASI was barely changed at 0.1 per cent lower at 4,202.23 points. The two indices are up 21.5 per cent and 17.1 per cent respectively so far this year.
Ronald Lugalia, the head of trading at Kingdom Securities, said the market had rallied in the last trading days of October as retail investors and high net worth individuals “speculated on the third quarter releases and other corporate actions”.
“The regular big players in the market are not yet in. I expect to see some support coming in in the next two to three weeks as investors lock in the current low prices for the next six months,” Mr Lugalia added. “There are counters which are greatly undervalued at the moment.”
Most listed companies have started announcing their third quarter results and more announcements are expected in coming weeks.
Ms Wambugu said that the performance of the market in coming weeks will largely depend on what kind of results banks announce in their nine months reporting.
An interest rates capping law that came into effect in September last year has hurt bank profits this year — the only thing that remains to be seen is the extent of the erosion.
The rate caps, coupled with a politically charged environment arising from two presidential elections, has hurt banks earnings from interest income.
It has also led to a sharp decline in credit growth, which only climbed by 1.5 per cent in July.
Equity Bank, the largest lender in terms of customers, announced on Monday its profit after tax for the nine months to end of September had dropped three per cent compared to the same period last year on the back of lower interest income from loans.