Kenyan shilling rise boosts investment confidence in 2024 Q1

• From January to March, investor confidence improved notably due to the stabilisation of the domestic currency (Kenyan Shilling), according to the Capital Markets Authority (CMA).
• The Capital Markets Soundness Report indicates a more stable shilling, which consequently positively influenced the equity markets, which improved compared to the quarter ending December 2023.
• The four market indices, NSE20, NSE25, NASI, and NSE10, closed at 1752.43, 2975.42, 113.09, and 1155.41 points respectively, an increase from 1,501.16, 2,380.23, 92.11, and 907.51 points.

Kenyan shilling on the rise

Nairobi Securities Exchange (NSE) was among the top African performers in the first quarter of 2024, buoyed by improved investor confidence that reduced outflows.

From January to March, investor confidence improved notably due to the stabilisation of the domestic currency (Kenyan Shilling), according to the Capital Markets Authority (CMA).

The Capital Markets Soundness Report for the period under review indicates a more stable shilling, which consequently positively influenced the equity markets, which improved compared to the quarter ending December 2023.

The four market indices, NSE20, NSE25, NASI, and NSE10, closed at 1752.43, 2975.42, 113.09, and 1155.41 points respectively, an increase from 1,501.16, 2,380.23, 92.11, and 907.51 points, recorded as at the end of the last quarter of 2023.

The volume of shares traded during the quarter increased to 1,069,443,500 from 780,219,000 a 27.04 percent increase. The market capitalization recorded on the last day of the first quarter increased from $10.9 billion to $13.4 billion.

The Morgan Stanley Capital International (MSCI) Kenya Index, designed to measure the performance of the large and mid-cap segments of the Kenya market, registered positive returns to close at 57.14 per cent.

“This has been supported by positive investor sentiments and macro-economic developments,” CMA said in its report.

MSCI Inc. is an American finance company headquartered in New York, a global provider of equity, fixed income, real estate indices, multi-asset portfolio analysis tools, ESG and climate products.

NSE net equity portfolio outflow for the quarter under review stood at $16.9 million, a further decrease from $[17.7 million recorded in the fourth quarter of 2023.

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Foreign market share in equities

This means there was reduced capital flight by investors who have been seeking better returns in markets such as the US since last year when the Federal Reserve increased its rate to tame rising inflation.

The increased fed rates made the US more attractive due to higher interests and a stronger dollar which remained bullish against other global currencies.

“The average foreign market share in equities turnover recorded a slight increase from 59.97 per cent in Q4 2023 to 60.31 per cent in the quarter under review,” CMA chief executive Wyckliffe Shamiah said.

Foreign participation in the equity market has recently attracted global institutional investors such as Blackrock following recent market recovery and positive developments in Kenya’s foreign exchange market.

The market concentration of the five blue chip companies averaged 63.93 per cent compared to 63.11 per cent recorded in the last quarter of 2023.

Safaricom Plc, Equity Group Holdings Plc, East African Breweries Ltd, KCB Group Plc, and the Cooperative Bank.

“This reduction demonstrates investors’ increasing willingness to diversify their investment portfolios away from the five top bluechip companies, by market capitalization,” CMA noted.

Foreign investors’ market share in the equity turnover increased to 60.23 per cent on the back of the return of foreign investors into the equity market, as foreigners continue to dominate the wealth basket at the bourse.

The MSCI Kenya Index posted an impressive 57.14 per cent increase on a year-to-date basis in US Dollar terms.

The volatility of the three market indices, namely the NSE 20, NSE 25, and NASI, remained low at 0.48 per cent, 0.56 per cent, and 0.65 per cent, respectively.

Market liquidity increased from 0.78 per cent to 1.14 per cent on the back of investors taking positions in profitable counters during the dividend declaration season at the Nairobi bourse.

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Performance of select African markets

A number of sub-Saharan African countries are likely to remain at high risk of debt distress into 2024.

Chad, Zambia, Ghana, and Ethiopia have already sought debt restructuring under the G-20 common framework.

With the easing of global financing conditions, a number of African countries are looking to return to international capital markets.

Côte D’Ivoire successfully raised $2.6 billion through two bonds in its first return to the international Eurobonds.

In February, Kenya also tapped the international bond market to raise cash and buy back a 10-year Eurobond of $2 billion that matures next month.

According to the forecast, lower inflation and softer interest rates will support overall economic activity in sub-Saharan Africa in 2024.

Select equity markets in Africa registered positive returns during the quarter under review, with only Nigeria and Zimbabwe registering negative returns.

Market data shows that Kenya, Morocco, Tunisia, and Senegal all recorded growth in the first quarter of this year.

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Global capital markets

Global capital markets have continued to show resilience, with the MSCI World Index recording a positive return of 8.88 per cent, compared with the MSCI Emerging Market Index which recorded a return of 2.37 per cent in dollar terms on a year-to-date basis.

The easing of the inflationary pressures is largely anticipated to prompt central banks to ease monetary policy tightening, which will likely lead to improved performance in the capital markets.

However, there is still some uncertainty about the ultimate monetary policy stance central banks will take, given the unpredictable global socio-economic and geo-political conditions, which will continue to have a bearing on inflationary levels.

There are indications that global economic growth may be slowing down a little bit, with global trade remaining subdued and the effects of tighter financial conditions still visible in the global housing and credit markets.

According to analysts, geo-political threats remain a major risk in light of the Middle East’s continuous conflict and the worsening Russia-Ukraine crisis.

However, the fading of the post-pandemic challenges and easing of global financing conditions seems to have infused recovery in select global capital markets.

Notably, with the signalling that the United States Fed may pivot away from further rate cuts, investors remain wary of the impact of worsening geo-political tensions and the slow pace of easing interest rate cuts across the globe.

Countries that have continuously undertaken IPO reforms, such as Japan and those with favourable IPO conditions, are expected to continue to foster significant activity into 2024.

In the first quarter of 2024, 287 IPOs raised proceeds of $23.7 billion.

This was a seven per cent drop from the first quarter of 2023, which registered 307 IPOs and a seven per cent increase in proceeds.

Americas and EMEIA posted a rise in IPO numbers and proceeds. In contrast, Asia Pacific posted a decline due to low liquidity, increased capital outflow and a 65 per cent drop in IPO activity in China.

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Top global risks  

During the quarter, key risks identified include uncertainty on the future outlook of rate cuts, which could lead to investors taking a cautious investment approach and dampening the sustained recovery of global capital markets.

Another challenge is the escalating geo-political tensions, especially in the Middle East and the Russia-Ukraine crisis, which continues to undermine global economic recovery prospects and could potentially lead to a sustained tightening of global financing conditions in 2024 to curb inflation.

Climate change remains a key risk, with the frequency and intensity of floods and drought affecting Kenya’s economic recovery post-Covid-19.

“The cost-of-living crisis remains an issue of concern arising from a persistent inflationary environment across the globe, squeezing low- and middle-income households’ budgets, which would affect retail investors’ investment into the capital markets,” CMA noted in its report.