Director of Regulatory Policy and Strategy at CMA Luke Ombara said Tuesday the sell-off is driving up the turnover on the NSE but also comes laced with a risk of reduced activity in the longer term if foreigners were to eventually shun the market in chase of higher yields elsewhere.
Market intermediaries are among those who would lose in the long run, especially if local investors do not step in to match the void left by foreigners exiting the market.
The intermediaries earn commissions from trading activity.
The Capital Markets Authority (CMA) has warned that the sustained net foreign investor sell-off at the NSE #ticker:NSE, now in its ninth straight month, poses a risk to the Nairobi bourse.
Director of Regulatory Policy and Strategy at CMA Luke Ombara said Tuesday the sell-off is driving up the turnover on the NSE but also comes laced with a risk of reduced activity in the longer term if foreigners were to eventually shun the market in chase of higher yields elsewhere.
Market intermediaries are among those who would lose in the long run, especially if local investors do not step in to match the void left by foreigners exiting the market. The intermediaries earn commissions from trading activity.
“There is a problem as to why the locals are not trading as much as the foreigners, and we also need to address what causes foreign investors to run from our market. We saw a similar thing in 2008 and so it is a risk that we have identified,” said Mr Ombara
Since November last year, foreign investors have been selling more than buying, leading to accumulated sell-off of $178.07 million (Sh17.94 billion) in the seven months to July, data from CMA shows
The worst months were in February and May with a net sales of Sh5.14 billion and Sh4 billion respectively.
Data in the latest CMA market soundness report showed that foreigners were commanding 68.77 per cent of the equity turnover for three months to June 2018 compared to 50.98 per cent in the first quarter of the year.
Mr Ombara attributes the sell-off to the foreign investors’ search for better yields in other markets as the dollar continues to improve and the US Federal Reserve having raised its benchmark interest rate.
“The impact of that is that with a strong dollar and higher interest rates, we see outflow of funds in search of higher yields,” he said.
According to independent analyst Aly-Khan Satchu, the NSE has been hit by a negative spillover effect of the tanking of most emerging market currencies despite the Kenyan shilling remaining relatively stable this year.
“The inexorable rise in US interest rates and the attendant reduction in the US balance sheet has meant dollars are in shorter supply and EM and the Frontier has found itself at the bleeding edge of this sell-off,” said Mr Satchu.
