The Nairobi Securities Exchange (NSE) is expected to see improved portfolio inflows from foreign investors following the end of the hard currency drought.
This week, Morgan Stanley Capital International (MSCI), a provider of services for global investors, hinted at ending its adverse view on local equities following the much-improved access to foreign currency allowing offshore investors to invest and repatriate capital.
“Starting from the May 2024 index review, MSCI will no longer apply the special treatment for the MSCI Kenya indexes announced on August 8, 2022. Based on the feedback from market participants, liquidity in Kenyan foreign exchange markets and the ability of foreign investors to repatriate capital from the Kenyan equity market has improved,” the MSCI said on Tuesday.
The New York-headquartered firm is the proprietor of the MSCI Kenya index measuring the performance of the large and mid-cap segments of the Kenya market in US dollar terms and has three constituents, namely Safaricom, Equity Group and East African Breweries Plc (EABL).
In August 2022, MSCI paused the review of the local index, highlighting market accessibility regarding hard currency availability.
Other markets that were handed similar cautions were Nigeria and Sri Lanka. MSCI has also ended its forex concerns in Egypt.
According to analysts, the end of the special treatment is set to provide tailwinds for foreign investor participation, particularly those investing in Kenya using information from the index.
“The review is positive for Kenyan equities and it might help raise the participation of foreign investors. Likely, we will see more foreign inflows, especially for investors who are not too keen to invest in individual stocks but would rather view the market from an index perspective,” noted Wesley Manambo, a research analyst at Standard Investment Bank.
The improved guidance comes just a month since another leading global index provider — the Financial Times Stock Exchange (FTSE) Russell Index — lifted a restriction on the NSE following improved access to dollars.
FTSE Russell also placed restrictions on the Kenyan market in 2022 following reports on difficulties in accessing hard currency from the local forex market to repatriate dividends and proceeds from the sale of shares.
This saw foreign investors dump shares worth Ksh24.4 billion ($187 million) and Ksh21.2 billion ($162.5 million) across 2022 and 2023 respectively.
They, however, broke a seven-month sell-off run in April by buying Ksh1 billion ($7.7 million) NSE stocks.
