The strengthening of the shilling has been a boon to foreign investors at the Nairobi Securities Exchange (NSE) as dollar returns remained in double digits throughout the first quarter of the year.
Data compiled by African Alliance shows the dollarised return of the NSE FTSE 15 was higher than the shilling return of the index by the last week of April, indicating those valuing their portfolios in the foreign currency were getting an exchange rate boost.
The shilling has appreciated by 2.8 per cent against the greenback this year, while the FTSE NSE Kenya 15 index is up 11.8 per cent in the period.\
“The FTSE NSE Kenya 15 is up 11.8 per cent year-to-date (15.2 per cent in dollar terms) and the total market capitalisation is currently Sh2.63 trillion. The average weekly value traded in the last six months is Sh3.8 billion ($38.3 million),” said Africa Alliance in the African markets report.
International investors normally use the FTSE NSE indices when picking portfolios. The FTSE NSE Kenya 15 Index tracks the performance of the largest 15 stocks ranked by market capitalisation.
The foreign investors therefore trade heavily on the large cap counters such as Safaricom #ticker:SCOM, East African Breweries Ltd (EABL) #ticker:EABL , Equity Holdings #ticker:EQTY and KCB Group #ticker:KCB.
When entering the market, foreign portfolio investors normally convert dollars into shillings, and likewise the local currency to dollars when selling.
Should the shilling strengthen in the intervening period, these investors will make an exchange gain by getting more dollars per shilling when they are buying dollar to remit abroad.
The high return, however, encourages profit taking among investors. Data compiled by Standard Investment Bank shows that in the first four months of the year, foreign investors held a net selling position of Sh9.5 billion.
Other peer bourses across the continent have also largely recorded positive returns in dollar terms this year, depending on how their currencies have performed against the greenback.
These include Nigeria (6.7 per cent), Morocco (6.2 per cent), Egypt (19.7 per cent) and Tunisia (16.4 per cent).
The much larger South Africa Johannesburg Stock Exchange has a negative dollar return of 1.03 per cent.