Foreigners buy Sh668m NSE shares in August

Securities traders at the Nairobi Securities Exchange (NSE) in the past. FILE PHOTO | NMG

Foreign investors turned net buyers in the Nairobi Securities Exchange (NSE) in August having purchased shares worth Sh668.4 million, according to market data, reversing a net selling position of Sh2.8 billion in July.

This marks the second positive month of portfolio inflows from foreigners this year –a rare outcome under depressed market conditions which have seen them dump stocks in emerging and frontier markets in favour of safe haven assets.

Read: Foreign investors dump over four billion NSE shares

The positive flows largely point to returning interest by foreign investors in the NSE after their purchase of stocks worth Sh113 million earlier in June.

Foreign investor net cash flows however remain negative on a year-to-date basis with the foreigners having disposed of stocks worth Sh16.5 billion so far in 2023.

June’s positive inflows ended a 15-month run of outflows by foreigners going back to March last year.

The portfolio flows are nevertheless expected to remain under pressure for the remainder of the year based on negative market sentiment.

“We expect further foreign investor sell-offs in the second half of 2023, albeit at a slower rate, driven by continued negative investor sentiment on emerging and frontier markets as well as a negative local currency outlook. The continued hiking of benchmark rates in developed markets has made returns more attractive and this is likely to drive further foreign exits,” noted analysts at AIB-AXYS Africa.

The equities market continued to trend downwards in August with the Nairobi All Share Index, NSE 20 and NSE 25 indexes contracting further by 5.9, 2.4 and 5.5 percent respectively.

The year-to-date performance of the three indexes meanwhile stands at losses of 22.9, 8.2 and 18.3 percent respectively.

The performance of the market has been partly driven by losses recorded in blue chips including Safaricom, Equity Group and Bamburi.

Foreign investors have been net sellers in the market over the past three years, recording outflows of Sh28.6 billion in 2020 and Sh10.2 billion and Sh24.4 billion in 2021 and 2022, respectively.

The downturn in the market, alongside the foreigners’ exits, has left behind sharply discounted stock prices with the market trading at steep price-to-earnings discounts.

Despite holding modest levels of stocks at the NSE, foreign investors are usually pivotal to the pricing of equities based on their high turnover level.

According to data from the NSE, the average foreign investor's participation in the second quarter of 2023 was 44.95 percent from 41.24 percent in the quarter ended March.

Read: Foreign investor flight from the NSE 'to continue'

The participation of foreign investors as a percentage of equity turnover has been declining over recent months to go alongside the turbulent marketplace, falling from highs of more than three-quarters of the equities turnover.

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