Foreigners flight a worrying signal for NSE

Foreigners cashed in Ksh1.5 billion from the stock market in May, pushing the year-to-date outflow to nearly Ksh5 billion.Foreign exchange risk and capital gains tax uncertainty are seen by analysts as the trigger of the capital flight amidst improving prospects in competing markets such as Nigeria and Egypt.

Data compiled by Standard Investment Bank (SIB) shows the highest outflows came in the first week of May when the investors took out Ksh900 million, 80% from the Safaricom counter.

“Foreign investor activity has been high, above 50% on average, and inclined towards distributive activity. From the current market trend coupled with the emerging forex risk, the NSE (Nairobi Securities Exchange) from a foreign perspective appears weak on dollar returns,” said Genghis Capital analyst Silha Rasugu. “Capital gains tax is also a factor due to the vagueness of the law and the uncertainties…for investors, uncertainty is risk, therefore, it has an impact on investment decisions.”

The negative investor sentiment has also been attributed to slower earnings growth across several sectors and the high count of profit warnings indicating a tougher operating environment for businesses. 

The May net outflow makes the fourth month out of five this year, with only February recording a net foreign inflow of Ksh201 million. In January, the investors took out Ksh273 million, Ksh3.1 billion in March and Ksh67 million in April.

Market analysts warn the risk of capital outflows to Nigeria and Egypt remains high, following peaceful elections in the former and the decision by Egypt to do away with CGT on equities.

(BUSINESS DAILY)