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Foreign investors at the NSE take cautious approach

Foreign investors are expected to demand higher premiums due to political risks posed by elections and economic risk due to the planned rate hikes by the US Federal Reserve.

NAIROBI, Kenya, Nov 7 – Foreign Investor’s net outflow hit Sh10.9 billion in the third quarter of 2017 representing an 84 percent increase compared to Sh5.9 billion same period last year.

Analysts at Cytonn Investments say political and economic risks on frontier markets still remains a risk and foreign investors are still adopting a “wait-and-see” approach due to this.

However, the analysts expect long-term investors to enter the market seeking to take advantage of the attractive valuations.

According to the analysts, the Investor sentiment has been high, with foreign investors entering the market in search of attractive valuations, amid a relatively peaceful election period.

Foreign investors are expected to demand higher premiums due to political risks posed by elections and economic risk due to the planned rate hikes by the US Federal Reserve.

Year to date, foreign investors are net sellers with net outflows of Sh10 billion.

“We expect the market to record subdued activity over the coming few weeks as market players remain cautious of the political uncertainty in the country. Despite this, we expect the market to remain supported by improved investor sentiment once fear and uncertainty dissipate, as investors take advantage of the attractive stock valuations,” Analysts predict.

Equities turnover declined by 36 percent during the month to Sh9.3 billion from Sh14 billion in September 2017, taking the year to date turnover to Sh100 billion

The market is currently trading at a price to earnings ratio (P/E) of 12.5x, versus a historical average of 13.4x, and a dividend yield of 4 percent, compared to a historical average of 3.7 percent.

“Despite the valuations nearing the historical average, we believe there still exist pockets of value in the market, with the current P/E valuation being 26.3% below the most recent peak in February 2015,” analysts added.

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