The Nairobi Stock Exchange (NSE) is increasingly gaining prominence among investors. Jaco Maritz asked Andre DeSimone, executive director of Kestrel Capital, about foreign interest in the NSE and what the future holds for the exchange.

How would you describe the interest from foreign investors in the NSE over recent years?

Since the advent of the electronic Central Depository System in 2004, the automated trading system in 2006, and live stock quotes being carried internationally on Bloomberg and Reuters starting in 2009, the interest of foreign investors in the Kenyan stock market has grown substantially. In fact, one could say that foreigners dominated NSE trading in 2009.

What percentage of investors on the NSE are institutional investors, and what percentage are retail investors?

Up until the global financial crisis in 2008, retail and high net worth investors accounted for the majority (50-70%) of NSE trading volume. With the global financial crisis and subsequent deleveraging of the financial system and investor balance sheets, trading volumes collapsed, as they did everywhere else in the world, and retail investors fled to the sidelines. This left the traditional local institutional investors like pension fund managers and foreign emerging markets funds, which now dominate trading.

Do you expect a significant increase in new listings on the NSE in the coming years?

Kestrel Capital expects more share offers in terms of secondary offers and rights offers from existing NSE companies like TPSEA Serena Hotels, Kenya Commercial Bank, East African Portland Cement, KenGen, Kenya Power and Lighting, and National Bank of Kenya. We also expect some new listings of private companies and privatisations of government-owned companies, but these may take more time.

What is your message to foreigners looking to invest in the NSE?

The NSE has become a fully automated, competitive and transparent market that enjoys active foreign investment. With local custodian banks like Barclays and Stanbic, foreign investors are also in good hands with respect to the safekeeping of their cash and securities in Kenya. From a broader perspective, Kenya continues to develop its position as the hub of East Africa. With its developed human capital base, infrastructure, international airport, regional rail system, oil pipeline, and the port of Mombasa, Kenya continues to service the greater East African region.

Lastly, which stocks on the NSE would you recommend to investors?

Currently, we are recommending the bigger “blue chip” companies with strong market positions and many with regional growth opportunities. These include Safaricom, East African Breweries, Equity Bank, Kenya Airways and Barclays Bank, as well as smaller companies like Access Kenya, KenolKobil, ScanGroup and Athi River Mining.