In a recurring trend, foreign investors have withdrawn Ksh 178.2 million from the Nairobi Securities Exchange (NSE) in the past month, extending the capital flight that has persisted throughout the previous year. This prolonged period of withdrawals is attributed to a significant disparity in returns, with investments in advanced economies yielding higher profits compared to those in emerging and frontier economies. This trend follows notable interest rate increases by the central banks of these respective economies.
Data from the Capital Markets Authority reveals that foreign investors were net sellers at the NSE last year, marking a substantial net portfolio outflow of Ksh 21.2 billion. The bulk of these sell-offs occurred in March, totaling Ksh 10.6 billion. However, there were positive surprises in June and August when foreign investors turned buyers, acquiring shares worth Ksh 113 million and Ksh 672 million, respectively.
Despite indications of imminent interest rate cuts by major central banks, which could potentially redirect foreign flows to markets like Kenya, Ronny Chokaa, a senior research analyst at AIB-AXYs Africa, highlights that the interest rate differential still favors developed markets. The competition among emerging and frontier economies further shapes the direction and destination of these capital flows.
Chokaa remarked, “From our point of view, we think that interest rate differentials currently remain in favor of developed markets, and as such, we see more runway for further tightening of the policy rate to spark a reversal. However, competition from active bourses across peer frontier and emerging markets has also fueled intense rivalry for capital, especially in the wake of disruptive technologies such as AI.”
The ongoing exit of foreign investors has contributed to a prolonged period of low stock valuations at the NSE, influencing the market’s direction based on their substantial market turnover. In 2023, the NSE witnessed a 27.5 percent decline in paper wealth, amounting to Ksh 547 billion, with the market capitalization closing the year at Ksh 1.439 trillion.
Photo ( NSE via google)
By: Delino Gayweh
Serrari Financial Analyst
February 5, 2024
