Foreign investor trading activity at the Nairobi Securities Exchange (NSE) fell by half last week as concerns over the effect of tighter Covid-19 restrictions in China hit global markets and pushed capital into safe havens.
The investors accounted for 28.9 per cent of the NSE’s weekly traded turnover of Sh1.28 billion, down from 58.9 per cent of the previous week’s turnover of Sh1.44 billion.
Last week, the protests across China over the country’s strict zero-Covid policies rattled global markets as concerns grew over the effect of possible unrest on the world’s second-largest economy and the leading manufacturing hub.
Such jitters filter through to smaller markets such as Kenya’s in the form of capital flight to the larger economies like the US, which are seen as safe havens for investors.
Analysts reckon that investors have also fretted over the availability of dollars in the market should they wish to exit.
This has slowed external inflows onto the markets, while those holding stocks have delayed sales.
“There has been a lack of activity from both sides – local and foreign investors - in the equities market. Dollar availability in the market means foreign investors are not re-investing dividends or bringing in new money... There has been quite an activity on the bonds side, especially the infrastructure bonds which do compete for the same local money,” said Muathi Kilonzo, head of equities at EFG Hermes Kenya.
These concerns have added to an already difficult period for the local equities market, which was already under foreign capital flight pressure due to the US Federal Reserve raising its benchmark rate to a 14-year high of 3.75-4.0 per cent as the world’s biggest economy battles high inflation.
The Fed has raised short-term borrowing costs faster this year than any time since the 1980s to take the heat out of the economy and ease price pressures.
The benchmark US 10-year bond rate — a closely watched gauge of market inflation expectations over the next decade — has climbed to 3.51 per cent, up from 1.52 per cent at the start of the year.
The dollar has also gained on almost all other currencies across the globe, effectively making non-US assets less valuable for foreign investors who have to factor in currency losses when booking their gains from an investment.