On the Macroeconomic Determinants of Foreign Investor Participation in the Nairobi Securities Exchange in Kenya

Abstract

The participation of foreign investors in a country's securities market plays a crucial role in the growth of any country. Kenya has continued to experience volatility of foreign investor flows leading to instability in the financial market. The study aimed to identify the macroeconomic determinants, which have a significant effect on foreign investor participation in Kenya. Secondary monthly data for the period January 2020 to December 2023 was extracted from the Central Bank of Kenya, Capital Markets Authority, and Kenya National Bureau of Statistics. The multiple regression model with the assistance of SPSS software was employed to analyze data. Findings revealed that the inflation rate, exchange rate, and GDP growth rate had a negative and statistically significant effect on the participation of foreign investors as illustrated by P-values of 0.001, 0.032, and 0.05 respectively, which are less than 0.05. The results inferred that the inflation rate, exchange rate, and GDP growth rate affect the participation of foreign investors at the Nairobi Securities Exchange. Interest rate as measured by the 365-day Treasury bill rate had a positive and statistically insignificant effect on the participation of foreign investors as presented by a P-value of 0.107. The results implied that changes in Treasury bill rates do not affect the participation of foreign investors at the Nairobi Securities Exchange. The notable fluctuations in currency rates and their volatility, along with the impact of inflation on foreign portfolio inflows, underscore the crucial role played by monetary policy. This should be accomplished by stabilizing the value of the Kenyan shilling. Maintaining the stability of the value of the shilling is crucial to boosting the participation of foreign investors.