The Nairobi Securities Exchange (NSE) expects increased activity following significant efforts to bring back foreign investors, who are for long dominated trading at the bourse.
Figures from the Capital Markets Authority (CMA) Report for Q2 2023, indicates that for the first time since February 2022, the NSE was able to register a net foreign inflow of equity worth KSh 130 Million. In the second quarter ended 30th June, the NSE recorded a net outflow of KSh 1.48 billion which is much lower than the previous quarter ended March 2023, where the bourse reported a net outflow of KSh 90 billion.
“What we are seeing in terms of outlook is a reversal in trends as foreign investors return to the bourse in search of better yields. Apart from positive policy pronouncements, especially from the monetary policy committee of the Central Bank of Kenya, a number of listed blue chip companies are announcing good results and impressive dividend payouts. We also have improved accessibility to foreign exchange-a matter that has been of key concern to foreign investors who have said it takes them long to repatriate profits or capital gains,” said Luke Ombara, Director of Policy and Market Development at the Capital Markets Authority (CMA) in an interview with Kenyan Wall Street.
According to Mr Ombara, the Nairobi bourse still remains attractive to foreign as well as local investors due to the perception that listed stocks at this exchange are still grossly undervalued.
When markets closed this Monday, Foreign investors were the dominant players on the day. They accounted for 56.4% of the total market turnover. Foreign investors turned bullish on key blue chips to print net inflows of KSh 29.8Million in the day.
Apart from luring foreign investors, there has been significant efforts to attract local retail and institutional investors.
“In the bonds market, we have seen introduction of the central bank of Kenya CSD system, which has addressed some of the weaknesses such as manual processing of documents, requirement of personal identification number when onboarding-which has now been eliminated,” said Ombara.
He said several other sticking issues that made foreign investors shy away from participating in the Govt debt market, have been resolved and therefore there is reason to be optimistic about prospects in the equities and fixed income markets.
NSE Activities Is Largely Driven By Foreign Investors
Available figures indicate that around January 2019, the NSE had over 80% market turnover driven by foreign investors. This has declined to just over 40% according to the latest figures.
However, the market has not been seriously affected because local investors have stepped in. “We are encouraging this trend in the upcoming CMA strategy so that we onboard more local retail investors” said Ombara.
Apart from the secondary market, there has been a substantial growth in the collective investment schemes. In 2014, the CIS market was valued at KSh 50 billion in assets under management. As at end of June 2023, this has increased to about KSh 161 billion in assets under management.
“This means that retail investors are finding a home in collective investment schemes and are increasing their participating in the capital markets but through unit trusts. The CIS segment might be the next growth horizon in capital markets in Kenya-where schemes such as pension schemes or alternative investment funds leverage on technology,” said Ombara.
The executive said that the NSE is still not where it should be, with liquidity levels still low. The Nairobi bourse is also having its trading volumes dominated by only 5 top companies, which is still high and a risk. But he said there is significant improvements as the market moves into the next quarter.
Ombara disclosed that CMA has been offering technical support to Ethiopia towards establishing a regular capital market and the exchange itself.
“We see opportunities for local stock brokers and investment banks, who can transact business across the borders through ‘passporting’ We have a few Kenyan stockbrokers in such countries as Uganda, Tanzania and Rwanda. Kenya has wide experience in structuring transactions, IPOs, corporate bonds. Market intermediaries have an opportunity to expand their footprints into Ethiopia with significant opportunity for cross listings of Kenya and Ethiopian firms on both exchanges,” said Ombara.
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