Foreign inflows and bank stocks in October lifted the Nairobi Securities Exchange (NSE) performance to the third-best position in Africa.

The NSE 20-Share Index -- which is a general indicator of the movement of share prices -- gained 6.48 per cent in the month, after the South African All Share Index, which gained 8.5 per cent, and the Egypt-EGX 30 index that declined 6.94 per cent.

The value of investor's wealth --as measured by market capitalisation --went up by an estimated Sh39.7 billion to Sh925.32 billion as at the end of the first week of November this year.

This is a sharp contrast to the month of August when the NSE 20-Share Index had lost almost eight per cent and investor wealth dropped by an estimated Sh100 billion making the Nairobi and Nigerian markets the worst performers in Africa.

Yesterday, the NSE 20-Share Index closed 13.14 points lower than Mondays close of 3,387.51.

Mr George Bodo, head of research at Apex Capital, said the investors began to buy banking stocks ahead of results, pushing up demand as foreign investors started trooping back into the equities market.

"This was during the run-up to banks releasing their results and there was a lot of speculative trading. There was a surge in foreign investor participation," said Mr Bodo.

He, however, said that the aggressive measures taken by the Central Bank of Kenya (CBK) to tame inflation and curb depreciation of the shilling had affected liquidity which had caused the market to remain flat over the past week.

Data from the NSE indicates that seven out of the 10 banking stocks gained between five and 24 per cent between the September 30 and November 4.

Barclays gained 24.88 per cent while Equity, National and CfC Stanbic gained 8.78, 8.6 and 8.47 per cent respectively. KCB Group gained 7.03 per cent; Standard Chartered 6.74 per cent while Cooperative Bank gained 5.69 per cent.

Foreign investor participation also improved to 64.54 per cent compared to 43.62 per cent in September and purchases exceeded sales for the fourth month in a row.

"It (the index) has been coming up steadily, primarily being driven by banking stocks and there has been quite a lot of demand," said Stella Karembu, a research analyst at NIC Securities. She said banking stocks may become the main drivers of the market through the end of the year but that Kenya Airways, which is planning a rights issue, may also drive the markets performance if it offers additional shares to existing shareholders before the end of the year.

As at the end of last week, banking stocks had continued their upward trend after Equity, KCB, Cooperative Bank and Barclays posted double-digit profits defying expectations that rising inflation and interest rates had eaten into their profits.

Kenya Airways is planning to raise about Sh23 billion in a rights issue and NIC Securities expects the airline to sell each share at about Sh20 representing a discount of about 20 per cent.