The Nairobi Securities Exchange (NSE) has outperformed its African peers in returns for foreign investors in the nine months to September 2024, helped by a stronger shilling that has amplified the returns on dollar-linked portfolios.
The closely watched Morgan Stanley Capital International (MSCI) index, which tracks the performance of 10 African stock markets, shows that the NSE has a return of 45 percent this year, having climbed to 802 points by September 30 from 553 points at the start of the year.
The NSE, which has nine of its constituent stocks included in the MSCI frontier markets and small caps indices, tops the list of the best performers ahead of Côte d'Ivoire (36 percent), Senegal (30.4 percent) and Mauritius (28.7 percent).
Other African frontier markets with positive movement are Zimbabwe (23.6 percent), Morocco (19.5 percent) and Tunisia (10.9 percent), while Nigeria posted a negative 73.9 percent return.
South Africa and Egypt, which are classified as emerging markets, have offered returns of 18.5 percent and -24.8 percent respectively in their MSCI index, with Egypt falling due to its local currency depreciation against the dollar.
The NSE’s rise to the top of the performance chart has largely been driven by the shilling’s gain on the dollar, as well as higher share prices among the majority of its MSCI listed stocks led by KCB (up 58.4 percent this year), KenGen (45 percent) and EABL (36 percent).
Over the nine months, the shilling has appreciated by 21 percent against the dollar to trade at Sh129.19 as per official rates published by the Central Bank of Kenya (CBK).
Last year, the shilling’s depreciation by a margin of 21.2 percent versus the greenback saw the NSE end up as the worst performer among the African markets tracked by MSCI with an index loss of 48 percent.
Foreign investors typically exchange their dollars for shillings when the enter the local market, and buy back dollars for repatriation when they sell their shares. An appreciating shilling therefore gives them an exchange rate gain when valuing their returns—given that they get more dollars for every shilling when exiting compared to their entry cost.
This dollarised return is therefore a key consideration for foreign investors, as is the availability of foreign currency and the liquidity of a stock, which helps in supporting large ticket trades.
In 2022 and 2023, the NSE was disadvantaged by dollar supply hitches in the local forex market, which made it difficult for foreign investors to repatriate their profits abroad.
As a result, the MSCI in August 2022 froze reviews of its Kenyan index, stopping the introduction or removal of constituent companies and adjustments on their weighting within the index.
The reviews are designed to give investors an up-to-date picture of the state of a stock exchange, allowing them to make informed investment decisions.
The freeze was lifted in May this year after the forex market stabilised. In subsequent reviews, the MSCI added KCB and Co-operative Bank to its frontier markets index, joining Safaricom, Equity Group and EABL.
It has also added BAT Kenya, KenGen, Kenya Re, and DTB Group to its frontier markets small cap index.
