The number of foreign investors at the Nairobi Securities Exchange (NSE) has dropped further, against a domestic market rally which has lifted the market by nearly 30 percent so far this year.
The number of foreign investors including individuals and corporates dropped to 8,520 as of September 2024 from 8,614 at the end of last year, according to data from the Capital Markets Authority (CMA).
Their numbers have fallen over the years from a high of 14,141 at the end of 2022.
The exits by the offshore investors since the start of last year, have been tied to hesitance while some foreign institutional investors have closed shop, leaving a reduced pool of participants.
Liquidity challenges saw several corporate investors close shop from emerging and frontier markets, including Kenya and Pakistan last year on the inability to access foreign exchange.
The stability of the Kenyan shilling over recent months and reforms allowing access to foreign exchange have however failed to lure the corporate investors back even as some emerging and frontier markets profit from the reversal of foreign flows.
“A few frontier funds closed due to persistent forex issues in Nigeria, Pakistan and Bangladesh. This has left a smaller pool of investors in emerging and frontier markets. While the emerging and frontier markets picture has improved, the same cannot be said for Kenya, where some questions still linger including the credibility of its fiscal plan,” notes Muathi Kilonzo, an executive at EFG Hermes investment bank.
“The US elections are also a big event. Maybe after November 5, investors looking at emerging and frontier markets will have more conviction on where to deploy their funds.”
Foreign investors have stayed away from the local bourse even as the NSE rallies, gaining by 29 percent on a year-to-date basis as of Wednesday this week, on improved macroeconomic environment and higher earnings by key counters such as commercial banks.
The Nairobi All Share Index (Nasi) has for instance gained nearly 30 points, reaching 119.33 points from a close of 92.11 points at the end of last year. Foreigners have been mostly bearish, having marked net sales/outflows in five of the last nine months to the end of September 2024.
The improved macro-economic environment including the end of a sovereign default risk attached to the June 2024 Eurobond maturity, had been widely expected to anchor a return of offshore investors
Central Bank of Kenya (CBK) Governor Kamau Thugge disclosure that asset manager BlackRock had made an investment in the NSE, after a four-year break driving hope for a reversal in both the number of foreign investors in the bourse.
The NSE has led the way all year in delivering the highest dollar denominated returns to investors, on the continent on the strength of the Kenya Shilling.
The end of restrictions linked to forex access on the NSE by the FTSE Russell Index in April and the addition of counters, including Co-operative Bank of Kenya, BAT Kenya, KenGen, Kenya Re Insurance Corporation and DTB Kenya to the Morgan Stanley Capital International (MSCI) frontier market index, has also raised the appeal of the local bourse to offshore investors.
Wesley Manambo, a senior research associate at Standard Investment Bank (SIB), says foreign investors have favoured emerging markets in Asia over Latin America and Africa.
“Foreign investors with exposure to global markets are skewing the better of their developed market capital, unwinding to Asian emerging markets with India and China offering impressive propositions,” he said.
“Case in point, the Chinese government announced a $113 billion (Sh14.5 trillion) stimulus package, to support their stock market which saw a rally in September shortly after the US Fed cut their rates.”
The lack of significant foreign market participants and meagre inflows implies that the rally seen in 2024 has been mostly anchored on the participation of locals.
Local investors for instance accounted for 59 percent of all traded volumes at the NSE in three months ended September 30 from 39.7 percent in three months to March as activity by their foreign counterparts cooled off.
“The significance of retail has been a little more than we think. If you exclude the big caps, the medium and small caps have performed quite well, driven by their participation including counters such as Kenya Power, East Africa Portland Cement and Carbacid Investments,” added Mr Muathi.
