A Nairobi Securities Exchange employee on the trading floor. The MSCI Frontier Index has increased the weighting for four Kenyan stocks on its list. Photo/FILE
What you need to know:
US firm MSCI raised Kenya's weighting of four stocks from 3pc to 4.8 pc.
Analysts expect the increase in weighting to force portfolio and investment managers who follow the index to adjust their holdings in favour of Kenya.
In 2013 the MSCI Index found the NSE as the fourth best performing market globally with a 43.58 per cent return.
Kenya has entrenched its status as a frontier market after US-based analysis firm MSCI increased the weighting of Nairobi Securities Exchange stocks in the basket it tracks.
The MSCI Frontier Index increased the weighting for Kenyan stocks to 4.8 per cent from three per cent last week, heralding increased capital flows to the bourse.
Analysts expect the increase in weighting to force portfolio and investment managers who follow the index to adjust their holdings in favour of Kenya.
“It is a possibility. The fact that the weighting on the Kenyan stocks has increased means that their performance is good and that investor confidence will be increased,” said Agnes Achieng, a research analyst at Sterling Capital.
Even before increase by MSCI the weighting there had seen strong foreign investor interest in Co-op and Equity bank’s shares.
Nigeria, Morocco and Mauritius are the only other African countries in the index with weights of 19.50, 6.14 and 1.29 respectively.
Foreign investor demand for superior returns is also expected to catalyse the market to rollout new and diverse types of securities.
“With more foreign investors looking into the frontier markets for higher returns, the likely effect is that our markets will also be forced to not only sustain their appetite for better returns by offering good stocks but will also be pushed to develop new financial products that could be attractive to investors across the board,” said Genghis Capital associate for transaction services Grace Ndegwa.
The industry regulator, has introduced laws that allow companies to issue real estate investment trusts (REITs) and collateralised debt obligations (CDO) but so far no company has issued any of the new securities.
NIC Capital is, however, working with Home Afrika — which had earlier mentioned plans to introduce REITs — to raise as much as Sh2 billion while MMC Africa, a Nairobi-based law firm, has engaged with companies that plan to introduce CDOs by the end of the year.
The NSE has cooled off as investors cash in on gains made on share price appreciation and books closure for dividend payout and bonus issues.
But expectations are that the issue of the sovereign bond and low rates in major markets are factors that will revamp the market.
“With the market price to earnings falling to just over 15.1 times and monetary easing measures in Eurozone announced on June 5, we expect foreign investors to turn back to accumulating activities. Historically, monetary easing measures have seen investors repatriate their investments into emerging and frontiers markets,” said a macroeconomic update by Genghis Capital.
In 2013 the MSCI Index found the NSE as the fourth best performing market globally with a 43.58 per cent return.
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