Boom For the Nairobi Stock Exchange as Foreign Investors Stream Back in Huge Numbers
The Nairobi Stock Exchange is starting to dream of better days ahead as foreign investors troop back in. The bourse, which is the largest in East and Central Africa in terms of market capitalization, has seen a 64% jump in foreign investor activity over the last month.
This indicates that investor confidence in the market is starting to improve. Despite this, it also seems that foreign capital is concentrated in three major Kenyan firms including Safaricom, Equity Group, and EABL.
What’s Driving This Surge
According to analysts, various factors are driving this sharp return of foreign capital into the NSE. However, growing concerns over global inflationary pressures appear to be playing a key role.
According to analysts, as inflation pressures increase on a global front, frontier and emerging markets provide a better alternative for investors around the world. Investor sentiment may have also improved as a result of Kenya’s recovery from the COVID 19 pandemic.
East Africa’s biggest economy saw massive disruptions as a result of the pandemic. But over the last few months, the government has eased pandemic era restrictions as it looks to revive the economy.
Data from the IMF estimates that the Kenyan economy will expand by 5.6% in 2021. This is the clearest indication that the post-pandemic recovery is well on course.
Where Does the NSE Move from Here
The Nairobi Securities Exchange has always had its fair share of ups and downs. However, steady growth has been reported in recent years. But due to the disruption of COVID, the market cap has been in the decline this year.
According to data from the Capital Markets Authority in Kenya, average equities turnover in the NSE stood at roughly $1 Billion as of September 2021. This represents a 17% drop compared to the same period last year.
There is however hope that the market is rebounding. The return of foreign capital seems like a huge step forward and as the economy hits the ground running, it’s only a matter of time before the good days are back.
Risks To Keep in Mind
Despite the positive outlook, there are some risks that investors need to be aware of. First, Kenya is headed to an election year in 2022. Current President Uhuru Kenya will vacate the office after the end of his second five-year term.
This sets up the country in a period of political limbo, something that will most certainly scare off investors. Kenya has also been rocked with election-related violence over the last few general elections. Economic activities have typically declined massively during elections as well.
So, even though the NSE could still come out stronger in 2022, the economic and political risks of the general election are real. In addition to this, Kenya has failed to achieve widespread vaccinations as far as COVID goes.
As the government continues to ease COVID restrictions, there is a risk that low vaccination rates could plunge the country into another COVID outbreak. This may have devasting effects on the economy.