Foreign investors end a 7 month sell-off run at the NSE

Foreign investors ended the month of August with a Ksh.195 million net buying position of stocks at the Nairobi Securities Exchange (NSE) ending a seven month run of sell-offs.

The positive buy position by the key players in the local securities exchange signals a return in investor confidence following shocks arising from the advent of the COVID-19 pandemic.

The investors who represent the bulk of activity at the NSE had since February disposed off holdings in NSE listed stocks causing a significant slump in the market valuation of companies on the bourse.

According to data from the Capital Markets Authority (CMA) through the first half of 2020, foreign investors turned net sellers in February through to June with a net selling position of Ksh.21.9 billion having sold off stocks worth Ksh.55.7 billion against Ksh.33.8 billion buys.

Heavy foreign investor sell-offs pushed the NSE into bear territory after the reporting of the country’s first coronavirus incident on March 13 with investors marking astronomical fair value losses.

For instance, trading was halted on March 13 for the first time since the annulment of the 2017 General Elections results in 2017 as the leading NSE 20 Index slid by more than five percent forcing an automated halt to trading.

On this day, investors marked a steep Ksh.119.6 billion loss in value as foreign investors accelerated sell-offs.

By the close of March, companies listed on the exchange had lost 21 per cent of their values with the Nairobi All Share Index (NASI) having marked a similar decline in the period.

Six months on, the NSE is showing signs of recovery with the NASI and NSE 25 index marking gains of 4.8 and 5.4 per cent from July led by an improved performance from banking sector stocks.

The highest gains have been registered by Co-operative Bank, Equity Group, Absa and KCB which were up by 13.3, 12.6, 10.6 and 7.6 per cent respectively.

Trading however remains below historical averages indicating points of entry to new investors.

“The market is currently trading at a price to earnings ratio of 9.5 times, 27.3 per cent below the 11 year historical average of 13 times. We believe there are pockets of value in the market for investors with higher risk tolerance and are willing to wait out the pandemic,” noted analysts at Cytonn Investment.

Foreign investors are crucial to the performance of NSE listed stocks representing the bulk of activity in spite of their low holding of stocks in comparison to local investors.

Average foreign investors participation in the second quarter of 2020 accounted for 64.59 per cent from 61.14 percent between January and March indicating increased participation.

The investors are integral to the valuation of companies by dictating the market’s daily turnovers.