Foreigners flock to NSE as local investors flee

By Jevans Nyabiage

Foreign investors are tightening their grip on blue-chip companies listed at the Nairobi Securities Exchange, taking advantage of stocks trading below valuation prices.

In October, NSE report shows that foreign investors actively participated in the equity market representing 65 per cent of the activity at the bourse.

This is an increase from September’s 43 per cent of the total equity traded value. The investors were active on the ‘buy side’ as contribution by local investors dwindled.

The foreigners have bought heavily into Safaricom, Equity Bank and Kenya Commercial Bank.

Analysts attribute the increased foreign investor participation to two factors; the equity market has dropped so low in the past months that quite a number of counters are now very attractive.

"It’s a unique buying opportunity and many foreign investors are taking full advantage," Einstein Kihanda, the chief investment officer at ICEA Asset Management says.

Also with the local currency stabilizing, the investors are now less concerned about suffering exchange losses, as was the case earlier.

"With the global investment outlook (USA, Eurozone) still so gloomy, foreign investors are looking for attractive opportunities in frontier markets in Africa and Kenya is a case in point," said Kihanda.

George Bodo, an Equity Strategist at Apex Africa Capital says although foreign investors have been leading the activity at the NSE, they are skewed to a few counters.

"A depreciated currency, more reasonable valuations for the equity securities, more manageable political risk and attractive growth prospects in the medium-term would increase the allure of investing in East Africa’s largest economy," said Donald Ouma, NSE head of market and product development.

Bodo reckons that foreign investors’ activities were higher compared to this week.

"They are doing an average of 50 per cent daily," says Bodo, who is also the head of research at Apex Africa Capital.

He says most stocks are trading below valuation prices, forcing local investors to look for consolation on higher yielding fixed income securities such as treasury bills, treasury bonds, fixed deposits and property as opposed to equities.

"There has been an outflow of money from the US, Europe and across the Atlantic to emerging markets. The foreigners are consolidating their risks," he said.

Key counters that have witnessed foreign activity are Safaricom, East African Breweries Ltd, KCB and Equity Bank. Also, the investors are picking a bit of Athi River Mining, Mumias, Access Kenya and a number of agricultural stocks.

In October, foreigner investors bought 333,985,741 Safaricom shares, followed by 49,988,574 Equity Bank and 26,337,298 KCB.

NSE index

"The NSE indices had an upward trend in the month of October, with the NSE 20 Share Index and NASI gaining 224 and three points respectively, compared to September, signalling commencement of market recovery," said the NSE report.

In terms of volume traded, actively traded counters were: Safaricom, Equity Bank, Kenya Commercial Bank, Barclays Bank of Kenya and Co-operative Bank.

For the week ending November 25, the NSE 20-Share Index, which is a general indicator of the movement of share prices – was down 2.9 per cent week-on-week. On Friday, turnover came in at $1.6 million.

"Foreign investors dominated trading accounting for 53 per cent of the day’s turnover," a report from Africa Alliance Securities, to its investors said.

The value of investor’s wealth – as measured by market capitalisation – lost Sh45.277 billion to Sh868.523 billion, up from the previous week’s Sh913.8 billion.

Recently, NSE unveiled two FTSE NSE Kenya indices that are expected to help international investors track performance of the NSE, in what is expected to expose the market to a large pool of foreign investors.

Safaricom, Equity Bank, EABL, Kenya Commercial Bank, Barclays Kenya and 20 other stocks were selected to form the FTSE NSE Kenya 15 Index and the FTSE NSE Kenya 25 Index.

The FTSE NSE Kenya 15 Index track the performance of the largest 15 stocks ranked by full market capitalisation, while the FTSE NSE Kenya 25 Index tracks the performance of the 25 most liquid stocks.

EABL, KCB, Barclays, Safaricom and Equity, which had the highest market capitalisation as at the end of September make up about 70 per cent per cent of the FTSE NSE Kenya 15 Index.