The Nairobi Securities Exchange (NSE) is eyeing a boost in foreign investor participation following the inclusion of five more Kenyan listed companies in Morgan Stanley Capital International’s (MSCI) frontier market indices.
MSCI said that Co-operative Bank of Kenya will be added to its frontier markets index, joining Safaricom, Equity Group, East African Breweries Plc (EABL) and KCB Group. It has also added BAT Kenya, KenGen, Kenya Re and DTB Group to its frontier markets small cap index.
The inclusion of these additional companies widens the pool of stocks that are visible to foreign investors at the NSE, potentially boosting foreign inflows at a time when the market has generally seen net outflows from offshore investors.
The latest changes will take effect after the close of business on August 30, 2024, the MSCI said in its review notice dated August 12.
The MSCI carries out quarterly reviews on its indices every February, May, August and November, allowing it to introduce or remove constituent companies and adjust their weighting within an index. The reviews are meant to gives investors an up-to-date picture of the state of an exchange, allowing them to make informed investment decisions.
Inclusion on the MSCI list and other global indices like the Financial Times Stock Exchange (FTSE) Russel Index in turn gives a listed company high visibility among foreign investors, helping price discovery through improved turnover and demand on the foreign desk.
“The move will enable wider and deeper coverage of Kenya’s equity market, increasing the visibility of companies listed on the NSE and enhance their attractiveness to global investors as the indices serve as benchmarks for institutional investors looking to gain exposure to frontier markets,” NSE chief executive Frank Mwiti said on Wednesday (yesterday) in response to the MSCI index review.
The inclusion of more companies in the MSCI Kenya index comes just three months since the lifting of a review freeze on the index that was in place between August 2022 and May this year.
The first beneficiary of the lifting of the review freeze was KCB Group, which was upgraded from the small caps index to the frontier index in May.
The freeze, also known as “special treatment”, had been put in place on account of deteriorating liquidity in the country’s forex market in 2022 and 2023, which made it difficult for foreign investors to repatriate capital from the market.
The changes that were suspended included migrations between size-segments and additions of newly eligible securities, including sizeable initial public offering (IPOs).
It also stopped making updates on the Foreign Inclusion Factor (FIF) for the NSE stocks, which indicates the proportion of issued shares that are deemed to be available for purchase in an equities markets by international investors.
The restarting of the interbank forex market and refinancing of the 2014 Eurobond in February this year helped liquidity of the forex market improve, aiding the return to normal treatment for the index in May.
At the same time, the strengthening of the shilling from March also resulted in improved performance of the index in terms of dollar returns for investors.
In the year to date, the MSCI Kenya Index has gained 36.2 percent to 753.5 points, marking a sharp turnaround in fortunes after being the worst performer among the nine African markets tracked by MSCI’s emerging and frontier indices in 2023, when it shed 48 percent of its value.
