Kenya’s stock market is struggling to impress investors and has recorded a deeply bearish run this year.
According to Bloomberg’s tracking of 92 global benchmarks, Kenya’s stock market is the world’s worst performer. Nairobi’s all-share index has slumped 32% in 2023. That means stocks in East Africa’s largest economy are now cheaper than ever compared with broader emerging markets. Stocks in Nairobi trade at about 3.6 times estimated earnings for 2024. That compares with 7.3 times for Nigeria’s benchmark gauge, 9.4 times for Johannesburg stocks and 8.8 times for MSCI Inc.’s index of frontier emerging markets. Yet, investors won’t bite.
The Nairobi Stock Exchange has witnessed a mass exodus of foreign investors this year. Foreign investors withdrew a staggering $98 million in the first quarter of 2023, and capital flight hasn’t stopped since. Between Q1 and Q2, they pulled out another $17.7 million. The bourse has observed only two positive inflows in the past six months.
One of the main reasons is Kenya’s dollar shortage. Kenya’s foreign reserves have plummeted, and the Kenyan shilling has lost 19% of its value against the dollar this year. It often takes days, or even weeks, for investors to successfully withdraw their cash. Instead, they are keeping their money in local Treasury bills, currently paying the highest returns in eight years. Yields on 364-day and 182-day government debt are above 15%, near the highest since November 2015.
Fitch Ratings said it may downgrade the nation’s credit rating depending on the portion of foreign reserves it uses to settle payments on a $2 billion Eurobond due in June. “Deploying reserves to redeem the Eurobond would reduce import cover, which could still contribute to a downgrade of Kenya’s rating depending on the extent of the drawdown and outlook for other sources of external financing,” Fitch said in a statement published on Tuesday.
Another reason is Kenya’s high inflation, which is now at 6.9%, a three-month high. It has led to rising interest rates, which make it attractive for investors to save money or invest in low-risk vehicles.
Also, the Kenyan stock market’s valuation depends heavily on the performance of a few big names. Safaricom Plc, the country’s telecoms giant, accounts for 41% of the index. But it has lost almost half its value this year. Safaricom was previously the darling of offshore investors due to its success with mobile money. However, investors have been reluctant since the company started pushing into the Ethiopian market.
Last year, foreign investors pulled out $170 million from the Kenyan stock market, citing escalating global risks.
