The Nairobi Stock Exchange has emerged the best performing market among key African markets since the start of the year, feeding on foreign investor cash hunting for capital gains.  

Research indicates that the Nairobi Stock exchange NSE 20 Share index returned 26.8 per cent in the year to April 16 compared to Ghana’s GSE All Share Index (12.50 per cent), Egypt’s EGX 30 (12.2 per cent) and South Africa’s JSE index (six per cent). 

Local analysts have attributed the show by the Nairobi bourse to “low priced shares” after the NSE faced deeper share price erosions in the last two years compared to other African markets.

As a result, international investors, mainly Africa-dedicated funds keen to cash in on the promise of higher returns than those found in other African markets, have increased their presence on the Nairobi bourse.

 “The East African equity markets had more or less lagged other African markets,” said Mr Eric Musau, an analyst at Renaissance Capital, adding that the new investor demand has helped the NSE catch up with the other main African markets.

 Financial analysts say that the NSE market counters have some of the lowest valuations, which is egging foreign investors.

According to the NSE, the share of net inflows from foreign investors into the equity market had dropped to about 44.04 per cent as at March 26 compared to a high of 72.10 per cent on January 10.  

The share of net inflows from local investors had on the other hand doubled to 55.96 per cent as at March 26 compared to 27.90 per cent on January 10.

 But analysts say this should not be confused with foreign investors losing out because there is still some relative balance in trading.

“For instance we could still find that for every sale by foreigners there is a corresponding purchase among local investors,” said Judd Murigi, head of Research at CFC Stanbic Financial Services.

“The Nairobi Stock Exchange is the best performing in terms of return and investors are keen to get a piece of the action before the overall prices rise and reduce the margins.” 
 
Blue chip stocks with high average daily turnovers such as Safaricom, East Africa Breweries, KCB Bank, Equity Bank, Mumias Sugar and Kenya Airways have remained the foreign investors’ favourite picks as they offer perfect platforms for ease of exits

Local institutional investors such as pension funds and insurance schemes have also picked the cue and are gradually returning to the stock market after opting to put their money in fixed income securities and real estates  

Their increased presence at the bourse has been prompted by the steady share price appreciation and falling returns on the government paper as well as improved profitability by listed firms.

 The long dated bonds, for instance, has dropped by three percentage points over the past six months on increased liquidity in the market, forcing the Central Bank of Kenya to forecast further interest rate reduction on government paper.

 “With interest rates on bonds coming down equities are becoming more attractive and institutions are changing their strategies,” says Mr Musau.

Retail investors, who fled the market after burning their fingers in the first major bear run since an unprecedented stock market rush-in that started with the KenGen IPO in 2006-are also returning to the market spurred by the share price appreciation.

The collapse of three stockbrokers in quick succession, which were heavy with retail clients, is widely believed to have been the single biggest factor that scared away the majority of the retail investors from the NSE.

The growing interest has pushed the equity market into a recovery phase. According to Mr Murigi, the NSE share index is likely to push through the 5000 index mark in the next two months, a clear indication of the renewed interest in the market.

Other analysts have indicated that factors behind the renewed interest are the falling yields on bonds, expected good performance by quoted companies and increased access to credit.

“The falling returns on bonds and renewed interest by financial institutions to provide credit facilities will eventually increase the attraction of equities”, said Onchera Maiko, the general manager for investment at British American Asset Managers (BAAM). 

Courtesy of BD Africa