The Kenyan stock market has seen a remarkable recovery in the past few months, rising by around 16% in the first quarter of this year amid improving macroeconomic fundamentals and positive market sentiment.
“The Nairobi Stock Exchange (NSE) has experienced impressive growth in the stock market, as evidenced by its market capitalization jumping from Sh1.43 trillion to Sh1.76 trillion at the beginning of 2024. is. [$13bn] In March 2024, investors’ assets increased by a significant 22.97%,” said NSE Chairman Kiprono Kitney.
talk to african business Kitney, who lives in Nairobi, said the growing bull market is a welcome development for many stock market investors in the country. These companies have had to grudgingly endure several years of lackluster profits.
“Over the past two years, various macroeconomic developments both domestically and internationally have led to a significant deterioration in the performance of NSE-listed securities. Prolonged global inflation and subsequent rise in interest rates in developed markets has led to a decline in performance from frontier markets such as Kenya. There has been a significant reallocation of capital to global markets.
President William Ruto’s economic policies, including increasing taxes, reducing the budget deficit, curbing inflation, refinancing maturing Eurobonds and stabilizing the exchange rate, are said to have excited investors flocking to the NSE.
Emily Fletcher, co-manager of BlackRock Frontiers Investment Trust, said Kenya’s improving macroeconomic outlook and the country’s political stability increased market traction. The trust owns a stake in Kenyan listed bank Equity Group, according to Bloomberg data.
“Given the stabilizing political climate, an improving macroeconomic outlook, and a stock market trading at a P/E of 5x, perhaps it’s time for investors to reassess the market,” Fletcher told Bloomberg. Isn’t there?” he said.
Kitney said a positive outlook from BlackRock, the world’s largest asset manager, boosted market sentiment. He also attributed the revival of the market to reforms made to make the country’s financial system more accessible to foreign investors, including resolving capital repatriation issues.
Supporting the promotion of privatization
The stock market rally could be key to a flurry of new listings promised by President Ruto, who previously confirmed that 35 Kenyan state-owned companies were to be sold to private investors. That includes the highly profitable Kenya Pipeline Company, which operates the country’s gas pipelines and oil storage facilities.
“Current market price improvements are paving the way for state-owned enterprises to achieve appropriate valuations when entering the market through initial public offerings,” Kitney said.
Absa Bank Kenya’s head of equity research Timothy Wambu said the government should use the rise in share prices to boost investor support for the privatization plan. He advocated a pragmatic approach to pricing, noting that investors will be looking to participate in trades that offer reasonable upside.
“In a bear market, IPOs are likely to disappoint, so privatizing state-owned enterprises through listing on the NSE will benefit from a bullish stock exchange. However, a successful IPO will require access to the broader market. It is important to mention that proper pricing is required to attract.”
Rise of individual investors
As stock prices rise, participation from domestic individual investors is expected to increase. This could increase household incomes, which have been squeezed by inflation and tax increases. But Wamboo points out that for retail investors to participate in the rally, it needs to be sustainable. Stocks are not attractive to most retail investors. Individual investors prefer simpler assets such as Treasury bills, bonds, and real estate, which have historically performed well.
“Equities have underperformed other asset classes in recent years. A sustained rally that supports wealth creation, similar to what we are seeing in India, will draw retail investors back into the stock market.” points out Mr. Wamboo. He added that the NSE is working with brokerages, fund managers and other stakeholders to address the factors hindering increased participation of retail investors in the domestic stock market.
“We are keen to promote financial literacy so that more Kenyans understand how to build wealth in the stock market,” he said, adding that the NSE is working closely with market participants. It added that it is developing a mobile-based application that will facilitate direct access to the market. For individual investors.
“Domestic retail investor participation in Kenya remains a huge untapped opportunity. Retail investor participation in the NSE remains significantly low at less than 10% and participation is currently dominated by domestic and foreign institutional investors. ”, he points out.
Bond market picks up
Stock trading is not the only area on the rise in Kenya’s financial markets. Bond trading is also increasing at a frenetic pace. Kitney notes that bond trading volume has more than doubled this year due to attractive returns on recently issued tax-exempt infrastructure bonds.
“Total bond volume for the first quarter of 2024 increased by 211.29% to Sh446 billion from Sh143 billion in the first quarter of 2023.” [$3.4bn] “This surge can be mainly attributed to the newly introduced infrastructure bond issuance,” he points out.
Rising interest rates are driving retail investors into Kenya, with some bondholders earning returns as high as 16% and 18% in an environment where inflation has fluctuated between 5% and 8% over the past year. is particularly attracted to bonds. .
The government has capitalized on this demand for bonds by amateur investors by launching a digital trading platform called DhowCSD that allows individuals to trade government securities online and through mobile apps. According to data from the Central Bank of Kenya (CBK), retail investors held 12.52% of the country’s total debt as of April 5, outpacing the 12.38% held by insurance companies and parastatals.
Kitney noted that the NSE is currently working on improving the efficiency of bond trading through the introduction of a hybrid bond market. NSE recently received approval to operate a hybrid debt market that combines the features of stocks and bonds. “Pre-trade transparency will improve with the introduction of a quotation committee that will give investors greater visibility into market quotes and support more informed trading,” Kitney said.
Despite increasing trading in stocks and bonds on the NSE, investors remain wary of corporate bonds, one of the asset classes traded on the exchange. Kenya’s once vibrant corporate bond market has faced difficult times in recent years, sometimes even on the brink of complete collapse due to investor concerns over the financial stability of issuers. In 2014, Kenya’s corporate bond market had a portfolio size of Sh71.3 billion across 28 listed issues. However, it has since shrunk significantly and now only has three investment-grade bonds.
The collapse of Imperial Bank and Chase Bank after investors poured billions of shillings into corporate bonds has eroded confidence in the corporate bond sector. The stock market also faces a lack of available products, particularly derivatives, exchange-traded funds, and other sophisticated products. Kitney says this is changing.
“We are delighted that NSE has made great strides in developing a range of investment products. We are Africa’s second most product-diverse market and are committed to helping investors effectively deploy their capital in Kenya. We offer advanced investment products that
he says african business Amid the current bull market, NSE is said to be embarking on an investor roadshow to gain support from overseas investors.
“NSE, in collaboration with various stakeholders, including listed companies, will conduct an international roadshow aimed at positioning Kenyan listed companies among international investors,” he said, adding that He noted that stock market executives are scheduled to visit the City of London and other global financial institutions. It is expected to be held at the center in the coming months.
