Foreign investor outflows in NSE fall by 57% in 2021

Capital markets

Foreign investor outflows in NSE fall by 57% in 2021


Nairobi Stock Exchange Trading Room. PHOTO FILE | NMG

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Summary

  • Net foreign sales to the stock exchange amounted to 12.4 billion shillings in 2021, more than half of the record outflows of 28.63 shillings recorded in 2020.
  • In the wake of the coronavirus outbreak in 2020, investors have pulled back sharply from equities, seeking refuge in other investment assets such as government securities to protect their wealth.

Foreign investor outflows from the Nairobi Securities Exchange (NSE) #ticker: NSE slowed in 2021, offering hope for a market recovery in the future, although headwinds in 2022 remain a risk.

Net foreign sales to the stock exchange amounted to 12.4 billion shillings in 2021, more than half of the record outflows of 28.63 shillings recorded in 2020.

In the wake of the coronavirus outbreak in 2020, investors have pulled back sharply from equities, seeking refuge in other investment assets such as government securities to protect their wealth.

Panic selling drove stock prices down, especially companies in the banking and service industries whose profits were hit hard by the economic fallout.

The easing of restrictions linked to the pandemic and the improvement in the economy last year, however, saw some investors return to the market, with foreigners particularly keen to recover undervalued blue-chip stocks.

The resumption of dividend payments by listed companies has also renewed investor confidence, those who took advantage of lower entry prices during the pandemic are expected to benefit from higher dividend yields.

However, uncertainty remains due to the surge in new Covid infections caused by the rapidly spreading Omicron variant of the virus.

Higher inflation in developed markets, which could cause their monetary authorities to hike rates, is also a concern, with analysts saying it could trigger a further westward flight of capital from developing markets.

The 2022 general election to be held in August also poses a risk to the market’s ability to attract foreign capital flows, especially if acrimony persists between the main candidates ahead of the election.

AIB AXYS Capital analysts say investors may take a wait-and-see stance ahead of the elections before making large capital commitments to the Kenyan stock exchange.

On the flip side, NCBA analysts don’t expect the election to negatively affect the economy, unlike previous polls.

They expressed optimism that investment could increase immediately after the election, offsetting any pre-election inactivity.

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