17 February 2014

Kenya: Foreigners Drove Bourse Last Year

Foreign investor holdings in firms listed at the Nairobi Securities Exchange surged in 2013, as confidence in the bourse rose to levels last seen 10 years ago.

The Capital Markets Authority's latest statistical bulletin shows foreign investor shareholding - excluding East African individuals and institutions - at the NSE had risen to 27.89 per cent in nine months to end of September.

This is the second highest level since 2004 when it hit 29.8 per cent, as foreigners renewed interest in NSE-listed firms. Going by the Sh1.9 trillion market capitalisation in November, foreigners' worth was in the horizons of about Sh529.9 billion.

CMA data shows foreigners' participation in the market remained above the 50 per cent mark in seven months of the year, raising the average for the whole year to 51.38 per cent.

Foreign investment totalled 21.29 per cent of the NSE capitalisation in 2012, having bottomed out at 7.8 per cent in 2008 largely due to the post election violence that devastated the country's economy at the time.

"The defining characteristic of the more than 24-month bull phenomenon in Nairobi and in fact across sub-Saharan Africa has been the increased participation levels of foreign investors," said Aly-Khan Satchu, CEO of Rich Management.

"What has happened in Nairobi is no different to what has happened in Accra, Ghana -- at all-time highs, Nigeria and even Egypt, which came to the party in the last six months (and) is at five-year highs."

Net cash-flow by foreign investors into the country also increased last year to Sh25.56 billion compared to Sh21.73 billion in 2012.

"The total annual net foreign portfolio inflow registered a 17.6 per cent increase," CMA states in the bulletin, adding that this was despite a decline in the fourth quarter inflows.

Analysts expect foreigners to sustain the trend throughout this year as optimism rises and global economies recover. Individuals and institutions are anticipated to remit more going forward, which could see foreign equity rise to all-time high this year.

"This year will be an interesting one. (I'm) not really surprised that foreign investors were active in the market in 2013. My view is that this will sustain in 2014. I expect Kenya to benefit from the EM (emerging markets) capital flight currently happening though majority of funds will be headed to their respective home countries," said Moses Waireri, head of research at Sterling Capital.

Waireri said the recent "recovery and general optimism" being witnessed in Europe will boost market confidence.

"Tapering is a factor, investors may be more risk-averse now but the African story is a great catalyst for them. All in all, I expect similar foreign performance for 2014," he said.

Satchu said foreigners will especially raise their participation through fund managers, which are yet to make a full impact in frontier markets as they have in emerging markets.

"My read remains that this is long-term institutional money where international investors are raising their allocation from close to zero previously. They remain way below benchmark," he said, pointing out that frontier funds - under which SSA falls - have $20 billion under management compared to $1 trillion in emerging markets.

"Therefore, sure foreign investors might wobble occasionally as they did recently but I continue to believe we are in a sweet spot and expect them to continue to support Nairobi and SSA markets higher," Satchu said.

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