Kenya 2024 market snapshot

In 2024, Kenya's financial markets experienced a rollercoaster ride due to a myriad of factors that influenced market performance. The year was marked by fiscal and monetary policy changes, currency fluctuations, protests against the finance bill, and the Eurobond buyback. Teddy Irungu, Research Analyst at Genghis Capital Asset Management, shed light on how these developments impacted the markets. The exchange rate volatility was a significant driver that impacted Kenya's market performance. The weakening of the Kenyan shilling to 160 against the dollar was attributed to high credit default risk as the country prepared to repay its 2024 Eurobond. This depreciation eroded investor confidence, especially in the equities market, leading to capital outflows. However, after Kenya repaid part of its Eurobond, the exchange rate stabilized, and foreign capital outflows slowed. Another crucial factor was the high-interest rate environment, prompting investors to shift towards government debt over equities. Yields on government securities rose, offering attractive returns compared to equities. Nevertheless, the Central Bank of Kenya's rate-cutting cycle, in line with developed markets, led to declining interest rates on government securities, renewing interest in the equities market towards the end of 2024. In terms of stock market performance, banking sector stocks such as Standard Chartered, APSA, and KCB stood out, with robust earnings momentum driving substantial value gains. These banks recorded impressive net earnings growth in the face of challenging macroeconomic conditions. Safaricom, on the other hand, faced challenges in its Ethiopian subsidiary due to monetary policy changes, postponing its break-even target to the fiscal year 2027. Looking ahead to 2025, investor confidence in the equities market is expected to strengthen, fueled by the continuation of the rate-cutting cycle by the CBK. Improvements in macroeconomic conditions, including low inflation and declining interest rates, are likely to support better earnings performance for equities. However, risks such as increased tax uncertainty could hamper consumer spending and equity gains. Overall, while equities are expected to see increased investor confidence in 2025, government securities will remain attractive due to their high yields and low risk profile. Foreign investors may demand higher returns on government securities following Kenya's sovereign credit rating downgrade. Globally, factors like the re-election of Donald Trump and the Federal Reserve's policies may impact Kenya's rate-cutting cycle and exchange rate volatility.