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VENTURES AFRICA – Nairobi Securities Exchange (NSE) bullish start to the new year has been reversed, with sell-offs by international investors in at least nine sessions, casting a black shadow over the bourse’s fortune, after just two weeks into the year.
The NSE had in recent months recorded massive foreign buying activity, which has been one of the key drivers of the stock exchange’s rally, with its biggest company by capitalisation, Safaricom, seeing its price rise to an all-time high of Sh12.45 ($0.14), and its market valuation reaching Sh498 billion ($5.7bn).
The Kenyan telecoms giant has however witnessed a drop in its share price and value in the past one week, closing the week at Sh11.50 ($0.13) per share and a Sh460 billion ($5.3bn) valuation.
East African Breweries Limited (EABL), Equity Bank and Kenya Commercial Bank (KCB) are other companies with big market capitalisation to be bearing the brunt of the contagion, having also experienced increased foreign selling in the past two weeks.
KCB and Equity saw their shares go down five percent to Sh43.50 and Sh31 respectively on Friday, and EABL dropped nine per cent to Sh260, compared to the previous week.
The foreign investor sell-offs, which has been regarded as the worst in emerging market currencies in five years is not unconnected with the US Federal Reserve’s announcement of a second month of stimulus cutback.
The US had been pumping $85 billion into its economy every month, but has gradually cut back its stimulus programme by about $10 billion per month after recording consistent economic recovery.
The 2008 financial crisis called for an urgent solutions which the US Federal Reserve took following the crisis, pumping loads of money into the financial system. The idea was that if there was enough money in the financial system, interest rates would remain low and borrowing encouraged, as well as spending; hence stimulating growth and promoting consumption.
The development encouraged banks and other financial institutions to borrow and invest in different financial markets across the world. Money raised in dollars at low interest rates was invested in stock, bond and commodity markets all over the world; Kenya was no exception at the time.
In November 2013, foreign ownership of shares at the Nairobi Stock Exchange NSE was reported to have shot to a seven-year high, totalling nearly a quarter of market value. This at the time was said to reflect renewed international investors’ confidence in Kenya’s economic prospects. The confidence seems to have waned in just months as trading data for the second half of January shows foreign investors sold off shares worth nearly a billion shillings ($11.5m), as against purchases of Sh470 million ($5.4m), translating into net outflows of Sh470 million.
The expected ripple effect of the cutback is already being felt by emerging markets like South Africa, India and Turkey, with other economies like Kenya also feeling the contagion effect.
“We expect some pressure on long-term frontier market positions as investors reprise their risk. We see foreign investors re-assessing their risk and should culminate in a slower incline than has been the case since the year began,” said Kenyan stockbroking firm, Genghis Capital research.