Since 2019, foreigners have largely remained bearish on smaller markets, largely due to a flight to the safety of developed markets amid global shocks such as the Covid-19 pandemic and the Russia-Ukraine war.
The Nairobi Securities Exchange (NSE) has gained Sh1 trillion in a year, reaching a three-year high as investors reallocate assets from bonds to equities in the wake of falling returns from government papers.
The value of shares at the bourse has jumped to Sh2.62 trillion from Sh1.6 trillion a year ago, gaining Sh518 billion since the start of June.
The gains in the equities market —the quickest gains in less than three months in years — have coincided with the fall in returns from government papers as the State seeks to lower its borrowing costs.
Returns from shorter-term Treasury bills have halved to a range of 8.01 percent to 9.58 percent from 16 percent to 16.9 percent a year ago.
This has triggered demand for equities from foreign and institutional investors, with the top 10 counters including Safaricom, KCB and Equity accounting for 84.7 percent of the Sh1.02 trillion gained in the past year.
“The gains are a result of several factors, chief among them the change in path for interest rates as the regulator eases policy, and forward expectations of the interest rates trending lower,” said Ronnie Chokaa, a senior analyst at Capital A Investment Bank.
“Foreign investors and local institutions are thus shifting from cash and near-cash assets to risk assets (equities), which were already heavily discounted coming into the latest rally that started in 2024.”
The Central Bank of Kenya (CBK) last week lowered its benchmark lending rate by 25 basis points, saying there was room to ease monetary policy further as inflation remains well within target.
The CBK cut its policy rate to 9.50 percent from 9.75 percent previously, the seventh cut in a row.
“The (Monetary Policy) Committee ... concluded that there was scope for a further easing of the monetary policy stance to augment the previous policy actions aimed at stimulating lending by banks to the private sector,” the CBK said in a statement.
Consumer inflation rose to 4.1 percent year-on-year in July, compared with 3.8 percent the previous month, but it remains well within the central bank’s preferred 2.5 percent to 7.5 percent band.
The flight from bonds has also coincided with improved corporate earnings by listed firms, particularly in the banking sector, which have attracted dividend-chasing investors to the bourse.
The equities market has built some resilience after coming through several major shocks in the past five years, which include the global Covid-19 pandemic, the ongoing Russia-Ukraine war and Israel-Gaza conflict, a General Election in 2022 and youth protests last year in Kenya, and the introduction of trade tariffs on imports by the US.
“Investors have largely become desensitised to these shocks, which are increasingly being seen as the new normal,” added Mr Chokaa.
The top 10 largest stocks at the NSE, which together account for 82.7 percent of the bourse’s total market capitalisation (the measure of investor wealth) have also contributed the bulk of the one-year valuation gains.
Safaricom, the largest listed company by market capitalisation, has seen its valuation increase 81.8 percent or Sh486.8 billion to Sh1.08 trillion, after its share price rose from Sh14.85 to Sh27 in the period.
KCB Group, Standard Chartered Bank Kenya and Equity Group have added Sh79.2 billion, Sh55.4 billion and Sh55.7 billion in valuation to Sh175 billion, Sh127 billion and Sh206.6 billion, respectively.
Their share prices have also gained 82.6 percent, 77.3 percent and 37 percent respectively, beating returns from bonds, real estate and bank deposits.
EABL has added 37.1 percent or Sh44.2 billion to its market cap to Sh163.7 billion, NCBA Group by 66.7 percent or Sh42.8 billion to Sh107 billion and Absa Bank Kenya by 41.6 percent or Sh31.8 billion to Sh108 billion.
Co-operative Bank shares rose 33.6 percent or Sh25.2 billion to Sh100.3 billion, and BAT Kenya by 26.2 percent or Sh9.1 billion to Sh43.9 billion.
Power producer KenGen, meanwhile, vaulted into the top 10 list with a price gain of 219.3 percent, which raised its valuation from Sh15.37 billion to Sh49 billion over the one year.
Among the smaller stocks, eight have reported share price gains above 100 percent since mid-August 2024, led by East Africa Portland Cement (EAPC) at 765.4 percent to Sh58.50 per share, Sameer Africa at 547 percent to Sh14.75 and Kenya Power at 491 percent to Sh11.35 per share.
These oversized gains have the interest and capital gain returns available on government securities in the shade.
New bonds issued this year have offered investors a coupon (actual payable interest rate) of between 12 percent and 14.4 percent, gross of withholding tax of 10 to 15 percent on interest for ordinary bonds.
At the same time, the secondary market price for an infrastructure bond issued in February 2024 at a coupon of 18.46 percent— the most lucrative bond currently in issue—stood at Sh120 per bond unit of Sh100, having peaked at about Sh122 per unit earlier in the year.
The price premium reflects the high demand for the paper among investors at a time when new issuances are paying much less.
In the property sector, land price growth in Nairobi’s suburbs and satellite towns stood at 6.7 per cent and 8.7 percent, respectively, in the 12 months to June 2025, as per analysis done by real estate firm HassConsult.
House sale prices, meanwhile, grew by 7.8 percent over the period in the city and its environs.
For investors keeping cash in fixed deposit accounts, lenders were paying interest at 8.37 percent as of June, CBK data shows.
The shilling value of dollar deposits has meanwhile remained largely unchanged over the period, with the exchange rate keeping within the Sh129 range for the last year.
