According to the World Bank, Kenya’s 2013 GDP is expected to hover around 5 percent driven by a rapidly expanding consumer sector and the discovery of sizable oil and gas deposits. This optimism is reflected at the Nairobi Securities Exchange (NSE) where the barometer NSE 20-Share Index has been on a surge. Indications are that Kenya’s economy could make modest recovery in 2013.

After a peaceful March 2013 poll, Kenya’s economy is back on the saddle on a full steam ahead.

“Interest in frontier markets with stable regulatory environment and attractive returns are what are attracting foreign investors to this market,” Eric Musau, a research analyst at Standard Investment Bank (SIB), told AFK Insider.

Foreigners are also looking at diversification propelled by the fact that African funds have very few liquid markets on the continent to look at.

“Foreigners still view Kenya attractively and are likely to remain active participants. However, the market still lacks alternatives in terms of asset classes and listed companies,” said Musau.

Currently, the most attractive counters are firms that have large capitalization levels and are also highly liquid. They include the region’s largest alcohol beverage company, East African Breweries Limited (EABL); telecommunications giant, Safaricom Limited; and  Kenya Commercial Bank and Equity Group.

According to Standard Investment Bank statistics, over 60 percent of activity at the NSE is driven by foreign investors.

The NSE 20-Share Index, which measures the performance of 20 blue-chip companies, maintains its upward trend. This index, updated at the end of each day, is a price weight index. Members making up the index are selected based on a weighted market performance for a 12 month period as follows: market capitalization 40 percent, shares traded 30 percent, number of deals 20 percent, and turnover 10 percent.

At present, an increasing number of foreign investors are setting funds with a view of tapping into opportunities offered by emerging markets. The criteria used by many foreign players include picking on large companies that are also actively traded and liquid to enable quick entry and exit.

As the NSE is the most advanced in the region, foreign investors consider this bourse a platform for entry into the wider East Africa region. Kenya falls into the frontier markets asset class. Foreign investors have been increasing exposure to this asset class on a continuous and consistent basis for about 24 months.

“There has been a rising tide for frontier equity markets and in particular for Sub-Sahara Africa Equity markets. Foreign investors are also valuation driven and therefore have been remarkably successful investors at the NSE,” Aly-Khan Satchu, an independent analyst told AFK Insider.

In this estimation, foreign Investors tend to focus on the biggest companies by market capitalization, especially EABL, Safaricom and the big cap banks.