In terms of dollar returns, the Nairobi Securities Exchange (NSE) was the worst-performing African stock exchange in the first nine months of the year, underscoring the effect of foreign outflows and global shocks on East Africa’s largest stock market.
The NSE was found to be one of the worst-performing stock markets in the world after the decline of the NSE All Share Index, according to another disputed analysis by Bloomberg, which led to the ranking on the Morgan Stanley Capital International (MSCI) Index, a crucial source of investment information for foreign investors.
The MSCI Index, which follows three Kenyan blue chips (Safaricom, Equity Group, and EABL), found that the Kenya Index lost 41.9 percent of its value to stand at 627.4 points, with the Zimbabwe Stock Exchange coming in as the second worst performer at negative 34 percent. The index’s performance has been adversely affected by both the depreciation of the shilling and the drop in share prices of the constituent stocks.
According to the official Central Bank of Kenya (CBK) rate, the shilling has lost 16.9 percent of its value versus the dollar since the start of the year, trading at 148.45 units. The blue-chip NSE 20 Share Index fell by 10% to 1508 points in shilling terms in the nine months to September 2023, while the NSE All Share Index dropped by 25.3% to 95.2 points. Market capitalization, a measure of investor wealth, decreased by 498.4 billion in the time period to reach Sh1.487 trillion.
Due to its position as the largest stock by market capitalization on the NSE, Safaricom bears the heaviest weight on the MSCI Kenya Index as well as the local shilling indexes. However, from the year’s beginning, the share price has dropped by 36% to Sh14.70. While EABL has lost 23.5 percent this year, equity is down 21 percent.
Despite being among the few stocks on the Nasdaq that consistently pay dividends, the trio of stocks has been under pressure from relentless foreign investor selling. The NSE acknowledged that the marketplace has been shaken by global shocks on Wednesday, but referred to the increasing dividend rates as one of the market’s present positives.
According to the exchange, many macroeconomic factors that have caused significant pressure on the world equity markets over the past few months have an impact on the performance of listed securities on the NSE.
Additionally, the MSCI observed in its analysis of Kenya in August 2023 that the market dividend yield was 8.63 percent, as opposed to 4.28 percent for the peer average group of stock exchanges in the MSCI Frontier Markets Index.
However, these dividend returns are up against Western returns that are just as appealing. As an illustration, the yield on the US 10-year bond is a little under 5%. Due to the US’s additional benefit of being a safe haven market, there have been consistent portfolio outflows from emerging nations like Kenya.
Foreign investors withdrew a net of Sh1.1 billion from the NSE in September, reversing August inflows of Sh668.4 million. The foreign desk continued its year-long up-and-down performance in July, with net sales of Sh2.8 billion, a sharp contrast to net buying of Sh133 million in June.
Overall, the NSE reported net foreign outflows of Sh18.6 billion for the nine months that ended in September. However, this figure has been inflated by the Sh22.7 billion purchase of extra EABL shares by British giant Diageo in March 2023, which led to net outflows of Sh10.7 billion in that month.
Given the vast range of sectors eligible for investment on the market, the foreign inflows or outflows into the NSE are a significant measure of how attractive the economy is to foreign investment on a larger economic scale.
The performance of the other nine African economies included in MSCI’s developing and frontier indices has been erratic this year, partly because of how their currencies have fared versus the US dollar.
Negative returns ranged from 7.4% to 34 percent in Zimbabwe, South Africa, Tunisia, and Nigeria over the time period.
The five remaining markets—Egypt, Botswana, Mauritius, Ivory Coast (as of June), and Morocco—saw gains ranging from 5.5 percent to 16.3 percent.
