Foreign investor holdings fall at NSE on selling spree

The volume of shares held by foreign investors at the Nairobi Securities Exchange #ticker:NSE (NSE) has dropped in the past one year following sustained selling by the investors in a bear market.

Data from the Capital Markets Authority (CMA) shows that foreign investors held 18 percent of the issued shares at the Nairobi bourse by the end of June, down from 20.9 percent in June 2019.

The stock exchange currently has 98.6 billion issued shares, meaning that the foreign held stock stands at 17.7 billion units, with the remainder (88 percent) in the hands of local and East African investors.

In the first half of the year, foreign investors made net sales worth Sh21.4 billion, part of a global sell-off that saw investors dump stocks and seek shelter in fixed income assets in the wake of the coronavirus economic fallout.

There was also a flight to developed markets deemed to be safe haven spots in the wake of the global economic uncertainty.

However, while local investors have the lion’s share of stock holdings, it is the foreign counterparts who dominate traded turnover at the bourse, with the CMA raising concern over the inactivity of locals.

“Noting that local investors hold the greatest shares in terms of quantity, more targeted market deepening and investor education initiatives will be undertaken in the year 2020 to increase participation of local investors with the aim of discouraging dormant accounts,” said the CMA in their Market Soundness report released earlier this month.

In the first six months of the year, the foreign investors accounted for 63 percent of total traded turnover at the NSE.

Their dominance of trading is also underlined by the fact that they almost exclusively trade in the large blue chip firms such as Safaricom #ticker:SCOM, EABL #ticker:EABL, Equity Bank #ticker:EQTY and KCB #ticker:KCB, which dominate the market in terms of market capitalisation.

The concentration of market cap in these top five firms, which also include Co-operative Bank #ticker:COOP, stood at 75.4 percent at the end of June.

The companies’ outsized influence on key market indicators, combined with the dominance of the minority-holding foreign investors in daily traded volumes, has made it difficult for investors to measure the true performance of the bourse.

This has also been compounded by the lack of new major listings at the NSE in the past decade, which has starved the market of new more vibrant local investors who can raise trading activity.

Most of the existing local stock holders came into the market during the IPO boom of the mid-to-late 2000s.