Foreign investors’ participation at the Nairobi bourse has dipped to its lowest level in over a decade as they seek higher returns in developed markets like the US and UK.
Data from the Capital Markets Authority (CMA) for the three months to September show that the share of foreign investor participation in the NSE equities market fell to 28.01 percent in September from 31.28 percent in August and 59.51 percent in April.
This emerges in a period when foreigners have remained net sellers at the NSE for all months this year save for June and August, making local investors key drivers of the bourse, which has gained 46.6 percent since the start of the year.
Foreign investors’ net sales, when share sales surpass purchases, rose to Sh7.2 billion in the nine months to September.
Steady returns from developed markets, including the US, the United Kingdom, China and Japan, have kept the offshore investors out of the NSE.
Stocks in the advanced markets have surged on the back of improved earnings and sustained appetites for tech stocks, which have been super-charged by their exploits in artificial intelligence (AI).
The share rally in the Western capitals has seen foreign investors ignore risky emerging markets such as Kenya, which has recorded a 46.6 percent gain, which the Nairobi All Share Index (NASI) has chalked up since the start of the year.
Analysts have reckoned that the continued positive returns from global markets, notably the US, have reduced the appeal of the NSE.
“Positive returns year-over-year in developed markets make it more difficult to justify investing in Africa from a risk/reward perspective,” analysts at Sterling Capital stock brokerage noted previously.
This month, the US market marked the third anniversary of its most recent bull run, which has been powered by gains in mega cap technology stocks such as Meta, Microsoft, Nvidia, Alphabet, Amazon, Apple and Tesla.
The US market rally has minted multi-trillion-dollar companies with Apple and Microsoft crossing $4 trillion in valuation each on Tuesday.
Drivers include improved sales of the new iPhone for Apple and the finalisation of a stake purchase in ChatGPT maker OpenAI’s for-profit business.
The market rally has defied concerns over President Donald Trump’s trade tariffs and fears of an investment bubble around tech stocks.
The NSE faced a difficult task of shaking off recent jitters, including weak policies and currency depreciation, which have exacerbated capital outflows from emerging and frontier economies.
Kenya has yet to have calendar net inflows from foreign portfolio investments into the NSE since 2019.
“Capital flight to hard currency-denominated assets over the past few years has largely been driven by negative sentiment toward sub-Saharan Africa as a whole due to currency depreciation, the Covid-19 pandemic and inconsistent policies negatively impacting business,” the analysts at Sterling Capital added.
Foreign investors made a high of Sh4.9 billion in net sales from the NSE in September, offsetting inflows of Sh1.6 billion in August, according to market data compiled from stock brokerages.
The foreigners have remained net sellers so far in October, selling stocks worth Sh1.4 billion on a net basis through Monday this week.
Outflows by foreign investors are expected to continue to the end of the year if gains in advanced markets hold up in the fourth quarter.
Global volatility from US tariff policies is, however, seen driving foreigners to return to emerging and frontier economies if the investment landscape in advanced economies becomes riskier and uncertain.
NSE market gains of 46 percent are on course to be last year’s return of 34 percent in what will cement its place as the top-earning asset class.
A stable exchange rate and low inflation have anchored the market rally alongside a drop in government security yields.
This has given investors an incentive to seek higher returns by re-entering the Nairobi bourse.
