Serrari Group

In a significant market development, foreign investors have offloaded shares worth Sh1.1 billion on the Nairobi Securities Exchange (NSE) last month, according to recent market data. This marks a noticeable resurgence in sell-offs from foreign investors, reversing the trend seen in August when offshore investors recorded a rare net buy position with portfolio inflows amounting to Sh668 million.

Foreign investors had mostly remained net sellers throughout the year, except for brief buying episodes in June and August. However, the recent sell-off is attributed to the continued surge in interest rates in advanced economies. This trend has prompted foreign investors to redirect their investments towards their home markets, which are currently offering comparatively higher returns.

While the US Federal Reserve opted to keep interest rates unchanged during its September meeting, it hinted at a prolonged period of stable interest rates and indicated a potential interest rate hike before 2024. Following suit, several central banks in advanced economies, including the European Central Bank, raised interest rates to all-time highs in mid-September to curb rising consumer prices.

With interest rates in advanced economies expected to remain elevated for an extended period, investors are positioning themselves to capitalize on these higher returns, causing them to withdraw from frontier and emerging markets like the NSE.

Stacy Makau, a research analyst at AIB-AXYS Africa, commented on the situation, stating, “The sell-offs in September are driven by the US raising their rates, which has made investments in advanced economies more attractive than in the frontier markets.”

Since the beginning of the year, foreign investors have divested shares worth a staggering Sh18.7 billion on the NSE, with the largest exits occurring in March, totaling Sh10.6 billion.

This surge in foreign sell-offs has had a substantial impact on the NSE’s performance, resulting in significant losses for the market. Year-to-date, the Nairobi All Share Index, NSE 20, and NSE 25 have returned losses of 25.2%, 9.9%, and 21.2%, respectively.

Furthermore, the participation of offshore investors as a percentage of equity turnover has declined significantly in recent months. This participation rate decreased from 59.54% at the end of December 2022 to 40.45% as of June this year, reflecting the ongoing exit of foreign investors from the NSE.

The situation remains fluid, and market analysts will closely monitor the evolving dynamics in the coming months as foreign investors continue to navigate the shifting global economic landscape.

Photo Source: Google

October 4, 2023
By Delino Gayweh
Serrari Financial Analyst

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