Nairobi Securities Exchange (NSE) on the trading floor of the Exchange Building in Nairobi.
Foreigners ended a seven-month sell-off run from the Nairobi Securities Exchange (NSE) by making net purchases of stocks worth Sh1.06 billion in April, according to new market data.
The net buying position was the first since August last year and signals a change in bearish sentiment by the key market participants whose share of total equities trading ranges between 50 and 70 percent.
Until April, foreigners had remained net sellers of NSE stocks having disposed of shares worth Sh2.2 billion in the opening quarter of 2024 to keep up with exits from the whole of last year when the investors dumped Sh21.1 billion in local equities.
Foreigners, however, took positions in NSE stocks last month against a profit-taking driven selloff where investors exited to pick up capital gains from the general share price rise in the first three months of the year.
Investor wealth at the NSE has for instance declined by more than Sh127 billion from a one-year high of Sh1.84 trillion as at March 27.
Banking sector stocks have seen the largest drop in share prices after investor sales triggered by the counters’ book closures for dividends.
NSE investor wealth nevertheless remains positive on a year-to-date basis with market capitalisation having closed at Sh1.66 trillion in April, a 15.6 percent jump from Sh1.439 trillion as at December 29, 2023.
Interest in local stocks by the foreigners has been anchored in an improving macroeconomic environment such as exchange rate gains along with the expectations of interest rate cuts in advanced economies.
The cuts in interest rates are projected to drive the allure for investments in emerging and frontier economies based on a higher returns differential. Analysts had observed the increased interest in local equities by foreign investors at the end of the first quarter even as the foreigners remained net sellers then.
“The intensity of bearish sentiment declined considerably over the quarter, as signalled by the 6.4 percent decline in net outflows from a higher aggregate turnover. We noted increased demand for discounted blue chips among foreign and domestic institutional investors,” analysts at the AIB-AXYs Africa stock brokerage said in an investor note.
Net inflows by foreign investors have been few and far between with only June and August marking net buying positions across 2023.
Investor exit
Last year’s substantive sell-off by the offshore investors had been fuelled largely by the reversal of flows from rising interest rates in advanced economies alongside local shocks such as difficulties in accessing foreign exchange.
The average foreign investor participation in the first quarter stood at 60.3 percent even as the number of the offshore participants dropped including the exit of 20 foreign institutional investors.
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