Foreign investors flee NSE amid heightened political uncertainty

Traders check out the trading index at NSE offices in Westlands, Nairobi. Photo/Elvis Ogina

Foreign investors are fleeing the Nairobi bourse amid heightened political uncertainty in the country, selling shares worth Sh34.2 billion in three months.

The latest data from the Capital Markets Authority (CMA) shows that most of the foreign investors cashed out of the Nairobi Securities Exchange (NSE) between July and September.

Over the period, shares worth Sh23.1 billion were purchased, leading to a net foreign equity outflow of Sh11.1 billion. In addition, foreigners, who ordinarily command the activities on the Nairobi bourse, have cut their participation to an average of 54 per cent.

Their participation fell to a low of 49.14 per cent in July as Kenyans prepared to go to the August 8 elections. Since January, foreign investor participation had been averaging above 65 per cent.

Street demos

According to Luke Ombara, the CMA director for regulatory policy and strategy, the market has been affected by uncertainty during the electioneering period, which has been further exacerbated by the uncertainty preceding next week’s repeat presidential poll following the nullification of President Uhuru Kenyatta’s election in August by the Supreme Court.

“The Sh11.1 billion foreign equity outflow registered in the third quarter was largely as a result of heightened political uncertainty in the country but is expected to rebound as long as the current situation does not become protracted,” said Mr Ombara in the report.

The country’s economic situation has also not been helped by street demos by Opposition supporters in their push for electoral reforms.

Despite the fact that foreigners are taking off, investor wealth, as reflected by end-period market capitalisation, increased by 20.7 per cent to Sh2.38 trillion during the period under review compared with Sh1.97 trillion in the third quarter of last year.

Equity turnover also increased from Sh48.14 billion in the third quarter of 2016 to Sh53.58 billion in the quarter under review. At the same time, the NSE 20 and all share indices rose 18.62 per cent and 15.67 per cent respectively.

However, more investors turned to bonds, which in times of uncertainty are seen as a safer bet due to their fixed return nature. This sent the bond market performance to the highest level in the third quarter since 2014.

Comparing the third quarter of last year to this year’s, the bond market’s performance rose by 44.6 per cent, posting a turnover of Sh108.16 billion, up from Sh74.81 last year.

As legal minds continue to differ on the legality of the repeat poll, the market shed Sh26 billion of investors’ paper wealth at the close of trading last week.

Given the mixed performance, Mr Ombara noted that the outlook for the next three months remains ‘largely unpredictable’.

He said concerns over the capping of interest rates and growing concerns over the rising public debt, which could trigger a downward review of Kenya’s sovereign credit rating, make the outlook gloomier.