NSE market capitalisation hit despite reduced foreign outflows

Foreign investors' exit at the Nairobi Securities Exchange eased by Sh320 million in the three months to September 2023 but still managed to impact the bourse, reducing its value for a third straight quarter.

In the period between July to September 2023, foreign investors pulled out Sh1.18 trillion, a drop from the Sh1.5 billion recorded in the second quarter of the year.

In the last six months, only two recorded positive inflows.

However, the Capital Markets Authority maintains that this suggests a positive trend where foreign investors are gradually regaining confidence in the market.

In the three months leading up to September 2023, Kenya's five leading companies, which are listed on the Nairobi Securities Exchange (NSE), collectively saw a decline of Sh101 billion in their market capitalisation.

CMA data shows that the five leading stocks by market capitalisation – Safaricom Plc, Equity Group Holdings Plc, East African Breweries Ltd, KCB Group Plc, and the Cooperative Bank – contributed an average market turnover of 65.41 per cent or Sh1.019 trillion cumulatively.

This represents a nine per cent (Sh101 billion) shed off from 67.8 per cent turnover or Sh1.12 trillion that the five contributed in the previous second quarter, lapsing June 2023.

The decrease has been attributed to foreign investors shifting their investments away from the exchange in search of safer alternatives, due to the devaluation of the shilling.

This signifies that, during the quarter, these five stocks experienced a more significant decline in value compared to the overall stock market, making them the top casualties of investors' sell-off, especially when contrasted with smaller stocks that have managed to withstand the market turbulence to some extent.

“During the quarter, the market experienced a net equity foreign portfolio outflow of Sh1.18 trillion. August marked the second month in 2023 when the market observed a net foreign portfolio inflow of Sh672 million,” CMA says in its latest soundness report

2023 has seen the share price of major NSE players like Safaricom decline to a new low as investors sold off to venture into more lucrative markets.

Overall Safaricom’s shares have declined by about 49 per cent since the year began to sell at about Sh12.3 per unit.

Other top performers, mainly commercial banks, have all recorded share price devaluation.

In October, the Nairobi bourse was ranked the worst performing African bourse in the first nine months of the year in dollar returns, highlighting the impact of foreign exits and global shocks on East Africa’s biggest stock market.

Foreign investors, have been voicing concerns over a dollar shortage in the country, difficulties in accessing short-term loans to shore up their working capitals, restrictions on capital repatriation and the high cost of doing business.

Similar to the first and second quarters of 2023, Safaricom Plc, Equity Group Holdings Plc, East African Breweries Ltd, KCB Group Plc, and the Cooperative Bank of Kenya Ltd maintained their prominent positions in the market.

These five companies collectively contributed to an average market turnover of 65.41 percent, representing a decrease from the 67.80percent recorded in Q2.

This reduction in market concentration over the recent past by these five companies indicates a trend where investors are increasingly diversifying their investments beyond the traditional blue-chip corporates.

By the end of the third quarter 2023, the NSE 20, NSE 25, and NASI stock market declined from their second-quarter levels.

During the quarter under review the domestic capital markets registered negative returns with the MSCI Kenya Index declining by 39.66 percent on a year-to-date basis in United States Dollar terms.

The prevailing tough local and global economic conditions continue to depress the domestic equity market performance.