The Nairobi Securities Exchange (NSE) has shed Sh182.45 billion in investor wealth since the Supreme Court ruling on September 5, reflecting the impact of outflows to the US where higher interest rates are drawing capital into the world’s largest economy.
The NSE was expected to gain from the peaceful conclusion of Kenya’s elections, which promises a period of stability for the economy, but the headwinds from foreign investor outflows and profit taking from locals have eaten into the valuation of the bourse.
Market capitalisation closed at Sh2.01 trillion yesterday, down from Sh2.19 trillion three weeks ago when the apex court ruled in favour of President William Ruto in the poll petition, bringing to a close a prolonged period of political uncertainty.
Thursday, the NSE shed Sh32.7 billion, with foreign investors making net sales worth Sh40 million on the day. In the last two weeks, they have made net outflows worth more than Sh1.4 billion from the bourse, weighing against the share prices of large blue chips counters which are dominated by the foreign trading desk.
Market analysts say the drop in investor wealth is attributed to the aggressive upward adjustment of interest rates by advanced markets such as the US and the UK in a bid to keep a lid on soaring inflation.
The US Federal Reserve last week rolled out a 0.75 percentage point rate hike, its fifth since March, forcing other central banks to follow suit as the dollar gained against global currencies.
“Whilst the Supreme Court ruling was positive, the global environment has not been conducive to emerging and frontier markets like Kenya. With the dollar strengthening across most currencies and investors risk-averse, frontier equities have found themselves not in favour,” said Muathi Kilonzo, head of equities at EFG Hermes Kenya.
“The drop in the NSE is, therefore, more of a symptom of global worries than specific Kenya risks, although these remain to be a concern.”
The Central Bank of Kenya (CBK) has warned that policies being adopted in the advanced economies have had an impact in Kenya, freezing out of the financial markets and making it ‘difficult for Kenya to maintain relationships in the capital markets and borrowing.’
The foreign sell-off at the NSE has seen a continued drop in share prices, in particular hitting large stocks such as Safaricom which attract heavy foreign interest due to ample liquidity.
Safaricom’s share price dropped to Sh25.15 yesterday from Sh38.15 at the start of the year, representing 34.1 percent decline.
This translates to a market capitalisation loss of Sh520.9 billion to Sh1.01 trillion in the period.
Others stocks that have shed in share prices include Equity Group, KCB and East Africa Breweries Limited which form the most traded stock at the NSE and are preferred by foreign investors in particular due to their large liquidity and solid fundamentals.