NSE activity dips as share prices take a hit on foreign investor exits

A notable decline in activity at the Nairobi Securities Exchange (NSE) has been attributed to foreign investors’ flight to more attractive destinations, such as Nigeria and South Africa, or cashing in on gains made over the past few years.

The data shows that turnover declined to Sh6.2 billion last week from Sh6.9 billion the previous week. Further, the number of shares traded stood at 185 million against 214 million the previous week.

The NSE 20 Share Index shaved off 89.02 points, a 1.9 per cent drop, to stand at 4638.44 at the close of the market on Friday last week, with the NSE All Share Index (NASI) down 2.2 per cent to settle at 155.96 points.

Renewed confidence

“The NSE’s depressed performance is linked to foreign investor activity. Foreign investors feel that the Kenyan stock market rally over the past three years, the bull run, is over, and they see better returns in other stock markets, such as the Nigerian or Johannesburg stock exchanges,” said Raymond Kipchumba, an analyst at ABC Capital.

He said investors who had left the Nigerian bourse have renewed confidence in it after the country had a peaceful transition of power in May. These investors are now selling off their stake in some NSE counters to return to Nigeria, whose stock market is about four times larger than Kenya’s.

“Other foreign investors are just cashing in on the gains made over the past few years. Some stocks have grown by more than 50 per cent over the past three to four years,” said Mr Kipchumba.

For instance, Centum, which started January 2013 at a share price of Sh13, is currently trading at Sh54. An investor liquidating this share after buying it two-and-a-half years ago would realise four times the initial investment.

Kenya Commercial Bank (KCB) in January 2012 was Sh17; it currently trades at Sh55, three times higher.

However, the majority of stocks listed at the NSE have lost between 15 per cent and 20 per cent of their value between March and July. Analysts attribute this trend to a weakening shilling, following a global shift from emerging markets’ currencies, and the country’s budgetary deficit.

Weakening shilling

“The downward momentum may linger, and as such, we strongly recommend portfolio diversification to shield against further dilutions as we look forward to the recovery of NSE stocks,” said Isaiah Wanyeki, a wealth manager at Genghis Capital.

While a weakening shilling should be a plus for a foreign investor — who gets more shillings per unit of foreign currency held, and is therefore in a position to acquire more shares than before — the impact has not been significant at the NSE.

“This is because a rise in the bench rate by the central bank’s Monetary Policy Committee, and the downgrading of Kenya’s long-term external borrowing outlook from stable (B+) to negative (BB-), may see a subsequent rise in yields in the bond market, making it more attractive to foreign investors,” said Kipchumba.

Analysts maintain that the NSE is currently undergoing corrective pricing as share prices gravitate back to their intrinsic value, but this should not worry investors. The NSE has a plan to trade futures, which is expected to offer a risk mitigating tool to investors.