NSE buckles as Kenya’s shilling on free fall

Kenya's stock market has been off to a rocky start this year as global headwinds continue to pound the bourse with net foreign outflows gradually increasing signaling a bear run. The Nairobi Securities Exchange (NSE) has faced challenges due to macroeconomic factors influencing global markets. The impact of international events directly affects the NSE, with interest rates rising due to inflation and geopolitical challenges, leading to high capital attrition from frontier markets back to developed markets. This resulted in a significant outflow of foreign investment capital from the NSE. Additionally, high domestic interest rates caused investors to shift towards fixed-income assets, impacting equity markets. The year began slowly, but some encouraging signs are emerging as international investors test the market for opportunities. CEO Geoffrey Odundo expects a positive trend as interest rates stabilize globally, hinting at a potential market recovery. However, companies in the region have issued profit warnings, reflecting high operational costs due to a previous year's high cost of capital and input costs influenced by rising currency rates. The banking sector has also faced increased borrowing costs and provisions for defaults, contributing to profit warnings. While challenges persist in 2024, the NSE anticipates a better year with cautious investor activity predicted. The weakening Kenyan shilling, down 24% against the US dollar, is impacting the market, providing opportunities for international investors to buy stocks at lower prices. The shilling's volatility poses evaluation risks, prompting cautious investment strategies focused on potential capital gains or dividend yields to offset losses. Efforts to stabilize the shilling, including the IMF economic program, are expected to settle the currency. The government's privatization agenda aims to improve the listing process, creating opportunities for new listings at the NSE. The privatization bill, now an act, has streamlined the listing process, paving the way for potential listings that can enhance market growth and generate proceeds for government programs.