Kenya: Foreign Investors Raise Stakes At NSE

Source from:  Business Daily (Nairobi) 3 September 2007 09/05/2007

Foreign players are increasingly placing their bets on the Nairobi Stock Exchange as they hedge against the turmoil in global financial markets. Foreign investors are now contributing up to a fifth of the bourse's turnover, but their presence is unlikely to be sustained, heralding sharp corrections for counters like KCB that has been the main beneficiary of what analysts perceive as hot money. Apart from KCB, foreign investor participation has been significant on East African Breweries, Kenya Airways, Diamond Trust Bank, KenGen, Kenya Reinsurance Company, Mumias Sugar, British American Tobacco, Athi River Mining and KPLC counters. "We have seen some increase in foreign participation at the NSE and we expect this to go up further when we enhance our automated trading system to facilitate online trading," Mr Chris Mwebesa, the NSE chief executive said. Regular participation by overseas investors had dropped drastically by the end of the 1990s and was virtually absent by 2003 before gathering pace from last year. Mr Mwebesa said foreign participation at the capital market was being encouraged by the growth that developing markets have seen in recent times. Reports indicate that panic trading that hit Wall Street and many global exchanges for weeks now has exposed a systemic crisis in the US and other capital markets around the world. Trading in speculative securities founded on US subprime mortgages had now reached a point where it was adversely affecting large European financial institutions. Asia has already been affected by the financial crisis originating from the US. However, Mr Humphrey Gathungu, investment manager at Stanbic Investment Services, said Kenya was still not integrated to the global capital market for it to substantially be affected by the subprime woes. "We cannot be affected by developments in the foreign capital markets in a similar manner that it is affecting other parts of the world. The Kenyan market is not really correlated to others and that is why it hardly moves," Mr Gathungu said. Mr Mwebesa said achieving even a 20 per cent foreign participation is a big achievement for a stock exchange that had virtually no foreigners a few years back. Mr Gathungu said the NSE needs to define the term "foreign" because with effect from July this year, investors in Uganda and Tanzania are being treated the same way as Kenyans in terms of withholding tax being set at five per cent for all. Analysts say it is often difficult to acquire specific information such as the level of foreign participation at the NSE on a regular basis because the bourse apparently considers it a cost. "Probably when the NSE begins data vending, we might be able to access some of these data," Mr Gathungu said. The NSE is seeking take advantage of the foreign participation at the market through internet links on the automated trading system (ATS). The ATS already has enough capacity for up to 54,000 traded a day but currently only uses a small part of that with only up to 3,000 trades a day and it reckons that it will be able to utilise the capacity once it has substantial trading from foreigners as well as from locals brought in by the increased number of the initial public offers. The Safaricom entry into the bourse, for example, with hundreds of millions in shares expected to be on offer, is likely to attract more foreign investors. Enditem