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Why the NSE Falls are Not the End of the World

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So, the Nation is carrying a story about how the recent falls in the Nairobi Stock Exchange are part and parcel of being part of “an integrated global economy.” Apparently, foreign investors are swapping their Kenyan investments for safer havens. Well, duh.

We are an emerging economy. After the post-election violence, we didn’t look like a very good investment opportunity. Yes, things have calmed down now and, yes, the NSE has been one of the most dynamic in Africa for the last few years, but really, what did we expect by allowing foreign investors in?

Remember the Safaricom IPO? How the stocks shot up before beginning their descent to today’s price of around Ksh3.55? Foreign investors were able to make a profit of up to 43% in just 10 days.

Did their actions seem mercenary? To some, yes. Were they taking advantage of their relative financial strength? Definitely. But international investors with diverse portfolios are being hit by bad economic news from every region. For them not to have acted on what looked like easy pickings would have been bordering on the irresponsible. It surely made more sense to make a quick killing and take their profits than to sit around and wait to see where the next wobble in the global economy is going to surface.

Now, I’m not saying that we should ban foreigners from investing in our stock market. Foreign investment is good for firms in raising capital they might otherwise struggle to achieve. What we as Kenyans should be doing is trying to achieve a modicum of maturity as investors.

Safaricom, in my opinion, is one of Kenya’s “blue-chip” stocks*. Unless the management severely mess things up — and I doubt they will — the company will continue to be profitable. As the small print in western advertisments says, your investment can go down as well as up. If Safaricom as a company is essentially sound, there is no reason to abandon it simply because the foreign investors have decided to cut and run.

Stocks are supposed to be for long-term investment. Quite frankly, if you expect to cash in on your investment within five years, invest in premium bonds instead. Really. On the other hand, if you’re content to wait for ten, or maybe even twenty years before cashing in, you’ll probably find that you’ve made an even bigger profit than the flighty foreigners.

*I am not, nor have I ever been, an employee of or investor in Safaricom

[Image by Neajjean]

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