Win for NSE as index provider lifts restrictions


Nairobi Securities Exchange. FILE PHOTO | DIANA NGILA | NMG

The Nairobi Securities Exchange (NSE) is set for a boost in foreign investor inflows after leading global index provider Financial Times Stock Exchange (FTSE) Russell Index lifted a restriction on the bourse following improved access to dollars in the forex market.

FTSE Russell had placed the Kenyan market under watch in 2022 following reports by foreign investors of difficulties in accessing dollars from the local forex market to repatriate dividends and proceeds of share sales.

This dented the confidence of the investors in the local market, discouraging inflows and forcing those holding shares to refrain from selling, which hurt the NSE’s turnover and price discovery.

In a statement issued on Tuesday, the NSE said the reclassification from a restricted market will boost inflows from foreign investors, who typically account for nearly 60 percent of daily turnover at the market.

"The NSE equity market has received an upgrade on its classification from restricted to pass by the FTSE Russell Index Governance Board in March 2024...following the FTSE equity country classification interim review of Kenya’s equity market against a range of technical criteria" read the NSE announcement.

The last review in September last year showed that foreign investors were unable to send money from Kenya to their home countries due to liquidity issues experienced on various counters at the Nairobi bourse.

In that review, however, the Index provider had allowed for changes to be made on the composition of the constituent firms on the NSE’s index, paving the way for the lofting of the restriction in the subsequent March 2024 review.

The London-based index provider conducted several engagement meetings with Kenya's Capital Market Authority to discuss the issue in the twelve months to September last year.

"FTSE Russell will continue to monitor foreign exchange liquidity and engage with the Ghanaian and Kenyan authorities should any delays reappear," said FTSE Russell on the September 2023 review.

The closely watched FTSE Russell’s market cap-weighted equity indexes are used by investors around the world to inform asset allocation decisions, support portfolio construction, and conduct risk and performance analysis. Other offerings include the well-known FTSE Global Equity Index Series.

Similar index change restrictions had been put in place since 2022 by the Morgan Stanley Capital International (MSCI), which includes Kenyan blue chips on its frontier markets indices. When announcing the “special treatment” of the Kenyan index in August 2022, the MSCI said that “such changes include migrations between size segments, additions of newly eligible securities, including sizeable IPOs”.

While the MSCI is yet to lift its restrictions on the Kenyan index, the FTSE Russel move will be seen as a positive at a time when foreign investors have continued to make net sales from the NSE, despite a gradual improvement in the performance of local equities.

Data from the NSE shows that foreign investors made net sales of Sh2.3 billion in the first three months of this year, with the highest selloff coming in March at Sh1.2 billion.

The rallying of the Kenyan Shilling against major world currencies has improved the performance of the bourse in US dollar terms however foreign investors have continued their flight from the market.

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