The Nairobi Securities Exchange (NSE) looks set to gain foreign inflows at the expense of the Nigeria stock market, which has seen reduced trading on the back of foreign currency supply problems.
Market data compiled by Bloomberg shows during the month of September, the Kenyan bourse outperformed its Nigerian counterpart in terms of traded turnover for the first time with a turnover of $152 million (Sh15.4 billion) against $139 million (Sh14 billion).
Nigeria’s economy has fallen into recession and the country also faces a foreign exchange shortage, which makes it difficult for investors to move their dollars out of the country.
The main cause of Nigeria’s economic troubles is the fall in price of crude oil, whose exports contribute to 70 per cent of the country’s revenues and nearly all of its foreign exchange inflows.
The naira has also depreciated sharply this year after the Nigerian government relaxed exchange rate controls. This is in sharp contrast with Kenya, which has enjoyed a stable exchange rate this year and where capital movement has been unrestricted for years.
“Forex scarcity and the depreciation of the naira are a big factor for an investor looking to put capital in Nigeria, given that investors prefer to go where currencies are not volatile.
“The recession of the Nigerian economy also means that listed companies are likely to be struggling,” said Sterling Capital head of research Eric Munywoki.
“On the Kenyan side, the attractiveness of the NSE is drawing from the stable exchange rate and the highly discounted prices on stocks that make it a good time to enter the market. The political risk ahead of the elections has also subsided somewhat.”
The Kenyan and Nigerian stock exchanges are seen as direct competitors for investor dollars, being the most advanced in the sub-Sahara Africa region after South Africa’s Johannesburg Stock Exchange.
The two exchanges can offer enough large cap stocks that have sufficient liquidity to support trading by foreign investors, who usually move shares in bulk.
Investors watch the dollar returns on offer in the respective markets keenly before putting in capital.
Statistics compiled by African Alliance show the Nigeria Stock Exchange is offering dollar investors a return of negative 37 per cent year-to-date, the worst return among African stock exchanges.
The NSE has a dollar return of -4.8 per cent, which makes it a more attractive option for investors.
The Kenyan market’s quarterly net foreign inflows have as a result been picking up progressively this year, going from $4.9 million in the first quarter of the year to $15.4 million in quarter two and $59.6 million in the third quarter ending September.
The quarterly foreign inflows for the third quarter were the highest since the second quarter of 2014.
The other competing destination for capital is the Egyptian stock market that has recently started to recover.