Kenya’s Stock Market in Trouble? 3 Indicators

Kenya’s stock market has been a hotbed of activity, attracting investors both locally and internationally. 

However, recent reports have suggested a potential shift in the market dynamics. Don’t panic just yet, though! 

We’re here to explore the signs that might indicate trouble brewing beneath the surface. So, join us as we embark on a quest to unravel the challenges confronting Kenya’s stock market.

Foreign investors are pulling out 

The first indicator that the Kenyan stock market could be in trouble is the rate at which foreign investors are pulling out of the market. 

According to reports, foreign investors yanked Sh23.9 billion out of the Nairobi Securities Exchange (NSE) in 2022. The annualised portfolio outflow from domestic equities was the highest since 2020.

This comes as Safaricom, the largest stock in Kenya’s stock market by average market capitalisation, shed 36.4 per cent of its value to close 2022 with a share price of Sh24.15 from a closing price of Sh37.95 a year earlier.

Also, Equity, Kenya Commercial Bank, KCB and Co-operative Bank of Kenya are other large-cap stocks which felt the heat of a falling market and retreating foreign investors.

Reduced appetite for Africa’s capital markets

Another indicator that  Kenya’s stock market could be in trouble is the reduced appetite for Africa’s capital markets. 

This is reflected in the loss recorded by Kenyan investors between January and September 2022. Reports say investors lost $6.37 billion as NSE-listed firms’ share values plunged 28%.

The reduced appetite comes after a hike in interest rates in developed markets like the US. The hike made central banks in African countries adjust interest rates upwards, amid weakening local currencies and rampant inflation.

The Kenyan shilling is depreciating against other global currencies

In the past five years, the Kenyan shilling has lost over 37% of its value against the US dollar. While this is bad, the shilling is also depreciating against other major global currencies, indicating trouble for Kenya’s stock market. 

To cushion the dive, Kenya’s central bank started using its US dollar reserves, which consequently created a dollar scarcity. The dollar scarcity affected importers greatly and contributed immensely to inflation and a high cost of living.

However, experts opine that the Kenyan currency hasn’t quite recovered from the global economic crisis sparked by the covid-19 pandemic.