Foreign investors have in the last month again become net buyers at the Nairobi Securities Exchange (NSE) lifting a market that analysts warn could see fluctuation ahead of Fed’s decision on interest rates next month.
The NSE has recorded net inflows of Sh1.48 billion ($14.7 million) from foreign investors in the past four weeks to reverse an outflow trend. The investors have also dominated the market accounting for 74 per cent of average weekly equity turnover in the period.
Old Mutual analysts Eric Munywoki and Halima Saadia, in a macroeconomic and markets analysis for sub-Saharan Africa economies, say the market may remain fickle in the medium term due to the US influence on capital movement.
“With improved US economic growth prospects and heightened speculations as to when the Fed will increase interest rates, capital flight has been evident in emerging markets particularly Kenya leaving markets bleeding as evidenced by the nose diving indices,” said the analysts.
“However, as we expect topsy-turvy sessions in the markets to continue in the medium-term ahead of US Federal Open Market Committee (FOMC) meeting next month, we foresee value proposition in BRVM region (West African regional bourse), Kenya, Nigeria and to some extent China.”
Given the high level of participation in the market, the return of foreign inflows has helped pull the market from a sustained slide that saw the main NSE 20-share index slide to a two-and-a-half year low of 4,343 at the end of July.
The NSE has since then bounced back and closed at 4482 points Tuesday.
Before the current four-week run of net inflows, the foreigners had pulled out capital for five straight weeks, which analysts largely saw as the main catalyst of the bearish run seen in June and July.
According to the Old Mutual analysts, investors are eyeing some value stocks in the banking segment, which having lost 10.5 per cent year-to-date, are once more emerging as an attractive entry point into the market.
“An average price to earnings ratio of 8.11 times in Kenya at the current market prices looks attractive (considering higher returns on equity of 21.4 per cent) compared to the peer average of 10.1 times,” they said.
In the fixed-income segment the analysts see the continued lack of liquidity in the money markets and macroeconomic shocks pushing up demand for short-term papers and their yield.
This, coupled with the recent rise in Central Bank rate to 11.5 per cent is, however, likely to reduce activity in the secondary bonds market, the analysts say.
“We maintain our expectation that yields on government securities will remain high due to a number of factors including the increase in the CBR, increased government borrowing in the domestic market to fund the 2015/2016 budget, and tight liquidity in the market as CBK maintains its mop up activity,” said financial advisory firm Cytonn Investments in a financial markets report.
Cytonn, therefore, anticipates yields on the reopened Sh20 billion two-year bond on sale this week to rise.