Foreign investors at NSE pull out $10mn in July

Foreign investors have pulled out $10 million from the Nairobi Securities Exchange in July, marking the sixth consecutive month of net selling despite the prevailing rise in market wealth. This trend of capital flight has left many economic analysts and investors concerned about the future of the market. Economic analyst Aly-Khan Satchu shed light on this persistent issue in an interview with CNBC Africa. He pointed out that the capital flight is not solely due to the recent $10 million withdrawal in July, but rather a part of a larger trend of six months where foreign investors have been net sellers on the Nairobi Securities Exchange. Satchu emphasized that excluding a few key players like Safaricom, Equity Bank, and KCB, the overall trend looks much bleaker. Satchu compared this current situation to the previous year when the NSE also experienced capital flight due to the pandemic. However, the reasons behind this year's capital flight are more complex, according to Satchu. He highlighted that emerging markets, excluding China, and frontier markets like Africa are struggling to attract investments due to lagging economic growth. Satchu noted that most equities tend to closely follow GDP growth, and with Africa being the slowest-growing continent, it reflects in the underperformance of equity markets. The economic analyst also pointed out some outliers like South Africa and Egypt, which have been performing better and attracting investments. Satchu attributed South Africa's attractiveness to its open market, liquid currency, and stable policy-making, which instills confidence in investors. On the other hand, Egypt's sophisticated policy-making and market signaling have contributed to its success in attracting foreign investments. Satchu suggested that Kenya should learn from these countries and focus on maintaining policy-making stability to attract investments. Despite some recovery in the Nairobi Securities Exchange driven by blue-chip companies like Safaricom and banking stocks, Satchu noted a significant performance gap between these companies and others in the market. He emphasized that while Safaricom benefited from the digital theme during the pandemic, its stock might now be overvalued. On the other hand, banking stocks have been recovering, with their regional presence insulating them from solely Kenyan risks. Satchu pointed out that the Kenyan parasitical sector, including companies like KenGen and Kenyapar, are currently struggling and unlikely to see a turnaround soon. Looking ahead, Satchu predicted that the banking sector's upcoming half-year results in September could attract foreign investors back into the market. He noted that banks had heavily provisioned last year for potential credit losses, and with signs of improvement in the first quarter, there is room for further price appreciation and international investment in the sector.