A sign of investor confidence in the market and an indication that the economic situation is promising.
Foreigners’ portfolio investments in Kenya more than doubled in the 12 months to June this year, reflecting an improving investor sentiment about the country.
Portfolio investment liabilities are assets such as stocks, government or corporate bonds, and other financial instruments held by foreign nationals in Kenya, and generally reflect the country’s attractiveness to overseas investors.
As of June, such investments hit Sh6.4 billion ($49.5 million), a 121 per cent rise from the negative value of Sh32.6 billion ($233.4 million) in June last year, latest data from the Central Bank of Kenya (CBK) shows.
Experts say this is a sign of improving investor confidence in the Kenyan market, and an indication that the country’s economic situation appears promising to far-away investors, at least in the short-term.
“There’s been some rebound in foreign investor sentiment locally, with the taking up of equities, investments, and securities, and that has now increased portfolio investments from a negative into a positive position,” said economist Churchill Ogutu of IC Asset Managers.
Kenya’s portfolio investment liabilities have been in the negative zone since June 2022, when the United States Federal Reserve rate rise caused a rapid appreciation of the dollar and an outflow of investments from several emerging and frontier markets like Kenya.
This meant that the total value of financial assets held by foreigners in the country was much less than those held by Kenyans overseas, an indication of negative investor sentiment.
Analysts say a cocktail of economic difficulties, including a weakening shilling, high inflation, and the perceived high risk of government defaulting on loans restrained investment inflows into the country for the last two years, but this is now changing.
The value has been improving since June last year but crossed to the positive side for the first time in March when it rose from a negative figure of Sh13.4 billion ($88.1 million) in February to a positive Sh2.1 billion ($15.6 million).
“That’s the time there was that big appreciation of the shilling, so it would have made sense to invest into a Kenyan asset to be able to capture the shilling’s gain,” Mr Ogutu said, adding that the jumbo rate hike by the CBK in December could have also contributed to the improved sentiment.
Since March, CBK data shows that foreigners have continued to steadily increase their portfolio in Kenya, but it is yet to hit the over Sh115 billion level last recorded in 2022 before the global economic turbulence saw mass capital outflows from smaller markets. The performance of the country’s capital markets has also been pointing to increasing returns for investors over the last year.
For instance, the Nairobi Securities Exchange’s (NSE) total market capitalisation, which measures the total value of assets held by investors on the bourse, has risen by over Sh237 billion since the beginning of this year, to Sh1.676 trillion as at the end of September.
The Morgan Stanley Capital International (MSCI) Index, which tracks the performance of 10 of Africa’s top stock markets, also shows that the NSE’s return rate for foreign investors has improved by 45 per cent since January, beating all other markets across the continent.