Foreign investors accounted for a higher share of turnover at the Nairobi Securities Exchange (NSE) in the first four months of the year compared to the same period last year as their market sentiment turned to the buy side.
Market data shows they accounted for a monthly average of 75 percent of traded turnover in the period, compared to 59 percent in the first four months of 2018.
They have also returned to a net inflow position this year, at Sh813 million, compared to the Sh9.5 billion in net outflows recorded in the four months to April 2018.
The higher activity and inflows had backed the market to a 12 percent gain in the period to April, although most of these have been eroded in the slide that has hit the market in the past three weeks.
“With optimism and calm returning to financial markets towards the end of last year and early 2019, foreigners sought to take on more risk especially in frontier markets, accumulating equity positions at the NSE ahead of the cyclical dividend season in quarter one where stocks tend to rally hence the significant increase in foreign participation within the period,” said Apex Africa Capital analyst Gift Kori.
“May has seen a bit of a sell-off in the large cap stocks, mainly Safaricom #ticker:SCOM, KCB #ticker:KCB, Equity #ticker:EQTY and BAT #ticker:BAT. However, there has been offsetting entries in counters like EABL combined with some major corporate announcements, hence the net inflow position.”
Foreign investors normally have a preference for large-cap stocks that have sufficient liquidity to support large ticket trades.
The high foreign investor participation, however, mean that the NSE is being exposed to global macroeconomic trends than would be the case if there was better balance between foreigners and locals in trading activity.
“Due to the high foreign participation, the market tends to have high affinity to the global macroeconomic environment — perhaps escalating tensions between US and China would partly explain why banking stocks fell despite trading cum-dividend,” said Mr Kori.