Sino-US conflict puts NSE at risk of investor flight

The stock market is at risk of a return to foreign investor flight that characterised the second half of 2018 should trade tensions between the US and China continue to rise, analysts say.

The foreign investors made net buys in the market for four straight months between February and May this year, as they looked to take advantage of falling share prices at the bourse.

Analysts now fear this run could be risked by the simmering tensions between the world’s two largest economies, whose trade tiff last year resulted in global financial markets instability that made investors shy away from frontier markets.

“Stocks registered their biggest pull back of 2019 as investors fretted over escalating trade tensions and the impact on the fragile growth outlook. The selloff was replicated in the local market as equities extended the April bearish run in May,” said Commercial Bank of Africa in a market note.

Last month, all the main indices at the NSE were in the red despite the foreign investor buying.

The benchmark NSE 20 share index, which mainly tracks blue chip stocks, ended the month 4.3 percent down, while the All Share Index closed May 4.7 percent lower.

Turnover during the month, however, rose to Sh12.47 billion from Sh9.85 billion in April, indicating that some investors have seen an opportunity to buy at the lower prices.

Analysts at Stratlink Africa, a risk and research firm, say that there will be further opportunities to enter the market during the current slide, something that may favour local investors who are more price sensitive than foreign counterparts.

“On the other hand, the currently low-priced equities offer an attractive entry position for potential investors,” said Stratlink in its June Africa market update report.

Local investors raised their participation in the market as a percentage of turnover from 24.5 percent in April to 36.5 percent in May.