Foreigners withdraw Sh21 billion from Nairobi bourse

Foreign investors withdrew Sh21.4 billion from the Nairobi Securities Exchange #ticker:NSE in the six months to June, leading to a sharp fall in the value of blue chip stocks like Safaricom #ticker:SCOM, East Africa Breweries Limited #ticker:EABL and Equity Bank Group #ticker:EQTY.

The foreigners, who make up about 70 percent of daily trading at the NSE, turned into net sellers in the first half of the year as 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.

Data from Capital Markets Authority (CMA) shows that the foreign investors’ net sell-off in the six months to June was in contrast to the market performance in a similar half last year when overseas dealers were net buyers at Sh1.96 billion.

The CMA report shows that foreigners pulled out Sh9.1 billion in March when the coronavirus pandemic hit most countries outside China. Investors have also been selling stocks in other markets, including the United States, Japan, the United Kingdom and Australia.

Stocks favoured by foreign investors and which make up the NSE-20 share index like Safaricom, Equity, EABL and Bamburi Cement #ticker:BAMB shed value in the half year ended June, cutting the value of shares at the Nairobi bourse by Sh174.5 billion.

“This drastic change can be attributed to the panic trading brought about by the Covid-19 pandemic,” the CMA said in its latest report covering events to June.

The top five favoured stocks – Safaricom, Equity, EABL, KCB bank #ticker:KCB and Cooperative Bank of Kenya #ticker:COOP – witnessed falls in share prices.

The five firms have grown their share of the market’s total investor wealth to 75.8 per cent in June, up from 65 percent three years ago.

The companies’ outsized influence on key market indicators has made it difficult for investors to measure the true performance of the bourse.

Restrictions imposed to curb the spread of Covid-19 and changes in business plans such as free transfer of M-Pesa transactions below Sh1,000 and restructuring of loans have dimmed the outlook of the five firms.

Safaricom reckons it will lose Sh19 billion worth of revenue by the end of the year from the free M-Pesa transactions.

Banks changed the terms of loans worth Sh844.4 billion by end of June, an equivalent of 29 per cent of their total loan book, highlighting the depth of economic hardship the Covid-19 pandemic has brought on borrowers.

Bankers have not commented on the potential impact of the loan restructuring on their earnings this year.

EABL’s net profit has dropped 39 per cent to Sh7 billion – a six-year low – due to the closure of bars, forcing the brewer to freeze final dividends.

The brewer’s share is down 28 per cent over the past six months, Equity’s has fallen 34.9 per cent while KCB Group is down 33.3 per cent over the same period.