East African securities markets have fallen by an average of 17 percent in a year, as foreign investors continue dumping shares of blue-chip companies in favour of high-yielding investments in the US and Europe, buoyed by soaring interest rates in the developed markets.
The Kenyan market is the hardest hit by the foreign investor exits, with the Nairobi Securities Exchange (NSE) All Share Index (NASI) plunging by 30.74 percent to 89.35 as at November 13, from 129.02 on November 14, 2022.
This is followed by the Uganda Securities Exchange (USE)’s USE All Share Index plummeting 27 percent to 896.25 from 1,230.28 in the same period.
Tanzania and Rwanda markets fell by 6.67 percent and 2.48 percent respectively. In Tanzania, the DSE All Share index fell to 1,745.24 from 1,870.06 while in Rwanda, the RSE All Share Index declined to 143.83 from 147.5 during the period under review.
During the week ending November 10, foreign investors remained net sellers on the NSE for the fifth consecutive week with a net selling position of $2.1 million, from a net selling position of $300,000 recorded the previous week, taking the year-to-date foreign net selling position to $287.6 million.
The biggest victims of foreign exists include Safaricom, Equity Bank, KCB, Co-operative Bank, KenGen and Kenya Power.
Analysts say the high foreign investor sell-offs will continue weighing down the regional equities outlook in the short-term, in the wake of depreciating currencies and uncertainty of availability of dollars in regional markets.
“Foreign investors are mainly interested in large companies because that is where they put their money and so when they decide to leave, those are the same companies they remove their money,” says Paul Mwai, NSE’s Vice Chairman and Chief Executive of AIB-AXIS Capital Ltd
Blame the interest
“The sell-off by foreign investors is across the emerging and frontier markets is mainly because interest rates are rising in the US and you can buy bonds much easier without the risk of currency depreciation.”
On November 1, the US Federal Reserve decided to hold its key interest rate (the federal funds rate) steady at between a range of 5.25 percent and 5.5 percent amid elevated inflation figures, while the Bank of England voted to maintain the policy rate at 5.25 percent in the same day, to help fight the rising cost of goods and services.
In Kenya , foreign investors remained bearish on key blue chip firms on the NSE to print net outflows of Ksh13.09 million ($86,688.74) on November 14, with the proportion of total foreign activity declining to 27.2 percent from 63.3 percent the previous day.
During the day, the top foreign traded counters were Equity Group, Safaricom, KCB Group, Co-operative Bank and Kengen, with each posting net foreign outflows of Ksh1.55 million ($10,264.9), Ksh7.92 million ($52,450.33), Ksh2.76 million ($18,278.14), Ksh540,000 ($3,576.15) and Ksh460,000 ($3,046.35) respectively, according to a market report by Genghis Capital.
Safaricom was the most traded counter on the day, accounting for 41.5 percent of the total market activity. The stock’s turnover was Ksh25 million ($165,562.91), with net outflows amounting to Ksh7.9 million ($52,317.88).
In the week ending November 10, foreign investors on the NSE posted total net outflows of Ksh325.42 million ($2.15 million).
“We are “Neutral” on the Equities markets in the short-term due to the current tough operating environment and foreign investor outflows, but also “Bullish” in the long-term due to the prevailing cheap valuations and expected global and local economic recovery,” according to a market report by analysts at Cytonn Investments Ltd.
“With the market currently undervalued about its future growth, we believe investors should reposition towards value stocks with strong earnings growth and that are trading at discounts to their intrinsic value. We expect the current high foreign investors sell-offs to continue weighing down the equities outlook in the short-term.”
The Bank of Tanzania (BoT) disclosed through its monthly Economic report (October 2023) that the Tanzanian foreign exchange market is facing increasing shortage of the dollar prompting the bank’s constant intervention to help normalise the situation.
The Tanzanian interbank foreign exchange market (IFEM) continues to face increased demand pressures driven by a ‘shortage of foreign currency,’ as a result of turbulent events emanating from the global North and the consequences thereof, according to BoT.
“Measures to address the challenges have thus far heightened worldwide demand for the United States dollar,” the bank says.
“In response, the Bank intensified its intervention in the market, selling $ 150.5 million in September 2023, nearly double the amount ($ 73.5 million) sold in the preceding month.
