The rising cost of living and waning confidence of local investors in the Kenyan stock market have triggered major re-alignments at the Nairobi Stock Exchange (NSE), and appears to have put foreigners in control of trading volumes.

Market trading data show that as locals have slowly pulled back from investing in the Nairobi Stock Exchange since mid last year, foreign investors have stepped up their participation, cherry picking stocks that are perceived to be grossly undervalued.

Foreign investors have pumped an estimated Sh2.3 billion into the economy since January, raising the profile of the NSE as an important source of hard foreign currency at a time when traditional sources of forex income such as tourism and agricultural exports continue to suffer from a variety of factors including the global economic downturn.

In total, foreign investors have traded shares worth Sh10.3 billion, accounting for 52.19% of the total turnover at the Nairobi Stock Exchange in the first seven months of this year.

Although the NSE remained a playground for international investors who listed subsidiaries of major multinational companies throughout the ’60s and ’70s, available trading data shows their participation has not crossed the 50% threshold since 2004.

Kenya’s position as Eastern Africa’s financial hub has, however, caught the eye of international investors, who are keen to cash in on the promise of returns higher than they can hope for in their more mature markets.

Analysts say the unfolding shift is a reflection of the apathy of local investors towards the stock market after many burnt their fingers in the first major bear run since an unprecedented rush-in that started with the KenGen Initial Public Offering (IPO) in 2006.

The collapse of three stockbrokers in quick succession is also widely believed to have scared away a significant portion of the markets estimated 1.8 million retail investors.

“Kenyan retail investors have simply kept off the market after last year’s downturn following a prolonged boom,” says Einstein Kihanda, Head of Fund Management at Sanlam Investment Management Kenya.

Mr Kihanda opines that the current indifference by locals to the stock market can also be attributed to the fact that most local investors were first time punters who had never tasted the cyclical tumbles of stock markets.

Though statistics show foreign investor participation at the NSE has increased steadily over the last half decade, this year appears to be an exception as investments from the battered Western economies appears to have gathered an unprecedented momentum.

Drawn in by the highly publicized Safaricom IPO that had a special reserve allocation for international investors, foreign investor participation clocked Sh39 billion accounting for 40.14% of total market turnover last year.

This figure was more than double the previous year’s foreign investors’ turnover of Sh16.7 billion which accounted for 18.81% of market total, which was in its turn a climb from the 2006 level of 10% of market turnover.

This month’s trading data suggests that the foreign investor dominance has continued.

Scrutiny of daily turnover reveals that on some days locals have accounted for a paltry 5% of total volumes, although this fraction may be somewhat distorted owing to the general slump in overall market activity this year.

The more savvy institutional investors have channeled their funds to the ’safety’ of government securities firing up turnover in the bonds market by 127% in the first half of this year.

“Local investors have turned to treasury bonds and real estate,” says Eric Musau, a Research Analyst at Renaissance Capital Kenya, “there are indications the Kenyan property market is still doing quite well.”

The disinterest in equities has depressed share prices, making NSE a fertile hunting ground for the international investors who have shown a huge appetite for blue chip bellwether stocks such as East African Breweries, Equity Bank, Safaricom and Kenya Commercial Bank (KCB).

These counters are well spread across the different economic sectors spectrum making it easy for foreign investment managers to balance their portfolios.

The Nairobi Stock Exchange (NSE) is also ranked among the most liquid stock exchanges in Africa alongside the Nigerian Stock Exchange, Johannesburg Stock Exchange, Morocco’s Bourse de Casablanca and the Egyptian Stock Exchange, which makes it a natural choice for investors scouring for opportunities in Africa.

“The investors look at Africa as one investment destination and then segment it into regions,” says Mr Musau.

Read more articles on the Nairobi Stock Exchange (NSE)

Nairobi Stock Exchange (NSE) | Sanlam Investment Management Kenya | Safaricom | Renaissance Capital Kenya | East African Breweries | Equity Bank

Source(s): Business Daily Africa