NSE posts 44 percent dollar returns in four months as equities recover

The CMA attributes the higher returns to sovereign default risk reduction.

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The Nairobi Securities Exchange (NSE) posted returns of 44.43 percent in US dollar terms in the four months to April 2024, according to data from the MSCI index.

The Morgan Stanley Capital International (MSCI) index is designed to measure the performance of large and mid-cap segments of the Kenyan market.

The index covers an approximate 85 percent of the Kenyan equities landscape, with three constituents including Safaricom, Equity Group and East African Breweries Plc (EABL).

Safaricom has the largest weighting on the index at 51.1 percent, ahead of Equity at 32.1 percent and EABL at 16.81 percent.

The improved dollar returns from the NSE at the start of the year from losses of 46.6 percent in the whole of 2023 coincides with a period of significant gains by Kenya shilling after last year’s historic slump.

The dollar returns nevertheless eased slightly in April as the shilling changed course against the greenback with year-to-date dollar returns having peaked at 57.14 percent in March, according to the MSCI index.

The shilling has appreciated against the US dollar since mid-February but let go some of the gains in April on the rebounding strength of the greenback before edging higher again over recent days.

The appreciation of the local currency has given foreign investors the opportunity to earn an exchange rate gain as they get more dollars for every shilling when they exit in contrast to when entering the market.

Foreign investors usually exchange dollars for shillings when entering the market and later buy dollars when exiting.

The Capital Markets Authority (CMA) credits the improved dollar returns to an improved operating environment which is defined largely by a reduction in sovereign default risks after the successful partial redemption of Sh266.1 billion ($2 billion) Eurobond notes maturing in June.

“The gains in the MSCI Kenya Index have been supported by positive investor sentiments and macro-economic developments,” the CMA notes in its quarterly market soundness report for the quarter ended March.

Between January and March, Kenya had the highest dollar returns among select African markets, trouncing foreign investor gains in markets including Zimbabwe, Morocco and Tunisia whose returns stood at 41.96, 4.21 and 3.14 percent, respectively in the period.

During the opening months of 2024, foreigners’ NSE portfolio flows have been a mixed bag having registered net equity sales of Sh2.2 billion between January and March, signalling the likelihood of exits engineered to lock in the improved dollar returns.

Foreigners nevertheless turned bullish in April, purchasing Sh1 billion NSE stocks to break a seven-month selling spree that had run since September 2023.

Local equities have been on a growth trajectory since the beginning of the year with investors turning bullish to drive up stock prices.

The momentum of the rally has however been curtailed by profit-taking exits which have tapered down the gains through the first four months.

As of Friday last week, the NSE as measured by the all-share index was up 13.6 percent with investor wealth standing at Sh1.63 trillion.

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