Summary
- Data from the Capital Markets Authority (CMA) shows that foreign investors held 18 percent of the issued shares at the Nairobi bourse by the end of June, down from 20.9 percent in June 2019.
- The stock exchange currently has 98.6 billion issued shares, meaning that the foreign held stock stands at 17.7 billion units, with the remainder (88 percent) in the hands of local and East African investors.
The volume of shares held by foreign investors at the Nairobi Securities Exchange
(NSE) has dropped in the past one year following sustained selling by the investors in a bear market.
Data
from the Capital Markets Authority (CMA) shows that foreign investors
held 18 percent of the issued shares at the Nairobi bourse by the end of
June, down from 20.9 percent in June 2019.
The stock
exchange currently has 98.6 billion issued shares, meaning that the
foreign held stock stands at 17.7 billion units, with the remainder (88
percent) in the hands of local and East African investors.
In
the first half of the year, foreign investors made net sales worth
Sh21.4 billion, part of a global sell-off that saw investors dump stocks
and seek shelter in fixed income assets in the wake of the coronavirus
economic fallout.
There was also a flight to developed markets deemed to be safe haven spots in the wake of the global economic uncertainty.
However, while local investors have the lion’s share of stock
holdings, it is the foreign counterparts who dominate traded turnover at
the bourse, with the CMA raising concern over the inactivity of locals.
“Noting
that local investors hold the greatest shares in terms of quantity,
more targeted market deepening and investor education initiatives will
be undertaken in the year 2020 to increase participation of local
investors with the aim of discouraging dormant accounts,” said the CMA
in their Market Soundness report released earlier this month.
In the first six months of the year, the foreign investors accounted for 63 percent of total traded turnover at the NSE.
Their
dominance of trading is also underlined by the fact that they almost
exclusively trade in the large blue chip firms such as Safaricom
, EABL , Equity Bank and KCB
, which dominate the market in terms of market capitalisation.
The concentration of market cap in these top five firms, which also include Co-operative Bank
, stood at 75.4 percent at the end of June.
The
companies’ outsized influence on key market indicators, combined with
the dominance of the minority-holding foreign investors in daily traded
volumes, has made it difficult for investors to measure the true
performance of the bourse.
This
has also been compounded by the lack of new major listings at the NSE
in the past decade, which has starved the market of new more vibrant
local investors who can raise trading activity.
Most of the existing local stock holders came into the market during the IPO boom of the mid-to-late 2000s.
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