A sustained selloff by foreign investors at the Nairobi Securities Exchange has seen their share of total issued stock drop below 20 per cent for the first time in at least six years.
The Capital Markets Authority (CMA) says in its latest quarterly bulletin that by the end of the third quarter, foreign investor holdings were equivalent to 19.85 per cent of the 96.24 billion issued shares at the bourse, having come down from 20.2 per cent in January.
Foreign investor holdings, CMA data shows, have held above the 20 per cent level for the past six years before the latest fall equivalent of some 400 million shares. Local institutional investors account for 68.67 per cent of the total shares held in the equity market, while local individual investors account for 11.48 per cent.
Although they hold a lower number of shares, foreign investors have dominated the turnover charts at the bourse — largely on the selling side — with the regulator expressing concern (in its market soundness report) that this is a risk to the market.
“As a consequence of the high level of outflow, foreign investors on the sell side have dominated the domestic market, accounting for about 65 per cent of the total equity turnover in September 2018,” said the CMA.
“…there is cause for concern on the direction of the markets, especially for the equities market, given recent performance indicators.”
In the 10 months to October, foreign investors have recorded net outflows of Sh27 billion from the market, outstripping total for 2017 at Sh11.6 billion.
The capital flight, analysts and the regulator say, is largely down to policy shifts, where there is increased uncertainty about local tax laws, increase in money transfer costs, and the increase in interest rates in the US.
The rise in local taxes, especially the excise duty fees charged on financial services can reduce the bottom line.