Cash-hungry foreigners ramp up presence at the Nairobi Securities Exchange

Nairobi securities Exchange (NSE) trading floor. Foreign investors have increased their presence at the NSE edging local investors to the periphery. (PHOTO: BEVERLYNE MUSILI/ STANDARD)

Foreign investors have increased their presence at the Nairobi Securities Exchange (NSE), edging local investors to the periphery.

With the bourse’s index at a relatively low level of 3,243 points as at end of September, Capital Markets Authority (CMA) said the market is either near bottoming out or it has already bottomed out.

“At such times, many counters are perceived to be undervalued and this, combined with the trading cycle, has created an opportunity for capital gain for both short and long-term investors,” said CMA in a statement to explain increased foreign interest.

In the third quarter to June, foreign participation at the bourse reached all time high of 87.18 per cent.

Not doing well

Latest data from the authority shows that in June alone, foreign investors purchased shares worth Sh14.7 billion and sold shares worth Sh13.3 billion.

CMA told The Standard on Sunday this is a manifestation that its master plan to attract foreign investors is beginning to bear fruit.

The regulator opened up listed equity companies fully to foreign investors, subject to discretion of the National Treasury, which assesses the strategic importance of each company as well as public interest before giving the nod.

Since February last year, foreign investor activity at the bourse has been on the rise, giving foreigners control of the market.

This is despite local investors remaining the highest shareholders.

By close of June, the NSE had over 1.2 local individual investors and 42,284 local corporate investors, but failed to command the expected volumes of trade.

“Local investors showed preference to invest in government securities, especially towards the close of last year since the stock market has not been doing very well,” Standard Investment Bank (SIB) analyst Faith Waitherero said.

According to CMA, foreign investors mostly seek investment opportunities for short to medium-term returns in line with their investment goals.

“This is why in the third quarter of 2016, for instance, foreign equity turnover was above 70 per cent, against a local turnover figure that averaged less than 30 per cent of total turnover,” said CMA.

With just 8,085 and 664 foreign individuals and local investors respectively, foreigners commanded the equity market, including for most of the best performing counters.

The regulator said most local investors buy shares then hold on to them as opposed to them turning over shares in the short to medium-term.

This, it says, explains why despite low activity on the bourse, their local shareholding figures stood at 74 per cent, against foreign holding’s  26 per cent. For the better part of the year, foreign investor activity has been heavily skewed in favour of Equity Bank and Safaricom shares.

The two, Ms Waitherero said, accounted for more than half of the traded volumes.

Government paper

According to Maurice Oduor, an investment manager at Cytonn Investment Management, most local investors such as pension fund managers are moving from stock to fixed income deposits and government papers.

Because locals have cut their participation in the market, foreigners now appear to be moving more volumes.

“Local investors are not participating much now. Foreign investors may not actually be moving high volumes, but the absence of locals is making their percentage to rise,” said Mr Oduor.

According to Ms Waitherero, local investors prefer the long positions, meaning buying of the securities rather than selling, since they are more speculative at the bourse.

NSE performance update by SIB shows of the top 10 movers in October, eight of the counters had at least 40 per cent of the activity coming from foreign investors.

East African Breweries, the fourth highest mover at the bourse by October, saw 93.3 per cent of the Sh990 million turnover done by foreigners. For Safaricom, the highest mover, 75.5 per cent of the Sh2.76 billion turnover was by foreigners.