NSE on a rebound as investors regain trust in Kenya’s market

This is has been helped by among others, stabilisation of the Kenyan shilling.

In Summary

• The volume of shares traded in quarter one 2024 (January-March) increased to 1.1 billion from 780.2 million, a 27.04 per cent increase.

• Market capitalisation went up to Sh1.76 trillion on the last day of the first quarter, from Sh1.43 trillion.

Live trading at the Nairobi Bourse/
NSE: Live trading at the Nairobi Bourse/
Image: FILE

The Nairobi Securities Exchange recorded improved activities in the first quarter of 2024, with market capitalisation rising to Sh1.8 trillion on enhanced investor confidence.

This is on the back of the stabilisation of the Kenyan Shilling, which has consequently radiated a positive influence on the equity markets.

The shilling which was on a losing streak most of last year, hitting a low of Sh164 this January, has made a strong run to settle at an average Sh133.

According to the Capital Market's Authority, January-March Soundness Report, the equity market registered a positive return of 55 per cent in the three months, on increased trading on shares.

The volume of shares traded increased to 1.1 billion from 780.2 million, a 27.04 per cent increase, as market capitalisation rose to Sh1.76 trillion on the last day of the first quarter, from Sh1.43 trillion.

Market capitalisation shows how much a company is worth as determined by the total market value of all outstanding shares.

The net equity portfolio outflow for the quarter under review stood at Sh2.23 billion, a further decrease from Sh2.34 billion recorded in the fourth quarter of 2023.

This signals continued investor confidence after a significant outflow which was influenced by higher returns in foreign markets, mainly the US, where Fed rate hikes attracted more investments last year.

During the quarter under review, the NSE’s average foreign market share in equities turnover recorded a slight increase to 60.31 per cent, up from 59.97 per cent in Q4 2023.

Foreign participation in the equity market has recently attracted global institutional investors such as Blackrock, following recent market recovery and positive developments in the Kenya's foreign exchange market.

Market concentration of the five blue chip companies averaged 63.93 per cent per cent, compared to 63.11 per cent recorded in the last quarter of 2023.

Safaricom, Equity Group Holdings, East African Breweries Ltd, KCB Group and Cooperative Bank account for about Sh1.1 trillion of the market turnover.

“This reduction demonstrates investors' increasing willingness to diversify their investment portfolios away from the five top bluechip companies, by market capitalisation,” CMA notes.

At the height of an investor flight for safer havens, amid shilling devaluation in the third quarter of last year, investors in the top five stocks lost about Sh101 billion cumulatively in paper wealth.

Global stock market index– Morgan Stanley Capital International (MSCI) has however indicated the NSE posted an impressive 57.14 per cent increase on a year-to-date basis in US dollar terms.

“The volatility of the three market indices, namely the NSE 20, NSE 25, and NASI, 10 remained low at 0.48 per cent, 0.56 per cent and 0.65 per cent, respectively,” the report states.

Market liquidity increased from 0.78 per cent to 1.14 per cent on the back of investors taking positions in profitable counters during the dividend declaration season at the Nairobi bourse

Kenya's successful issuance of the $1.5 billion Eurobond (supported by a high quality order book exceeding $6 billion) is also said to have “infused confidence” in Kenya's capital markets, given the macro-stability outlook leading to the return of foreign investors to the Nairobi Bourse.

This will support the capital markets market deepening efforts and performance.

“The signal to buy equities was very clear because it became overtly clear that the top in rates was in and so was the bottom for the shilling. With many stocks trading at crazy low multiples, double-digit dividend yields and reporting healthy results, it became a no-brainer buy,” data analyst Mihr Thakar commented.

CMA has however pointed to potential risks that could undermine performance of the capital markets, among them uncertainty on the future outlook of rate cuts, which could lead to investors taking a cautious investment approach.

The escalating geo-political tensions especially in the Middle East and the Russia-Ukraine crisis also continue to undermine global economy recovery prospects and could potentially lead to sustained tightening of global financing conditions in 2024 to curb inflation.

“The escalating Middle East crisis coupled with effects of tighter financial conditions still visible in the global housing and credit markets remain key economic risks as we head halfway into 2024,” CMA chief executive Wyckliffe Shamiah said.

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