Expectations high as Kenya’s stock market turns bullish

A rising stock market could help to boost the fortunes of retail and institutional investors and enable President Ruto’s privatisation agenda.



Kenya’s stock market has staged a recovery in the past few months, rallying around 16% in the first quarter of the year amid improving macroeconomic fundamentals and positive market sentiment.

“The Nairobi Securities Exchange (NSE) has witnessed remarkable growth in its equity market, evidenced by the surge in market capitalisation from Sh1.43 trillion at the onset of 2024 to Sh1.76 trillion [$13bn] in March 2024, marking a substantial 22.97% increase in investor wealth,” says Kiprono Kittony, chairman of the NSE.

Speaking to African Business from Nairobi, Kittony notes that the prevailing bull run is a welcome development for many stock market investors in the country. These have had to begrudgingly endure several years of lacklustre returns.

“Over the last two years performance of listed securities at the NSE came under significant pressure due to various macro-economic developments, both locally and internationally. Protracted global inflation and the subsequent rise in interest rates in developed markets led to significant capital reallocation from frontier markets such as Kenya to global markets.”

The economic policies pursued by President William Ruto – such as raising taxes, cutting the fiscal deficit, taming inflation, refinancing a maturing Eurobond and stabilising the exchange rate – have been credited with enthusing the investors who are flocking back to the NSE.

Emily Fletcher, co-manager of the BlackRock Frontiers Investment Trust, said Kenya’s improved macroeconomic outlook and the country’s political stability had boosted the market’s pull. The Trust owns shares in listed Kenyan bank Equity Group, according to data from Bloomberg.

“With a stable political backdrop, improving macroeconomic outlook and a stock market trading on five times PE [price-to-earnings], perhaps it is time for investors to relook at the market,” Fletcher told Bloomberg.

The positive outlook from BlackRock, the world’s largest asset manager, has boosted market sentiment, according to Kittony. He also credits the market’s resurgence to the reforms undertaken to make the country’s financial system more accessible to foreign investors, including fixing issues with the repatriation of capital.

Boost for privatisation drive

A rising stock market could help unlock the flurry of new listings promised by President Ruto, who has previously confirmed that 35 state-owned enterprises in Kenya are slated for sale to private investors. These include the lucrative Kenya Pipeline Company that operates the country’s gas pipelines and oil storage facilities.

“The current improving market prices are setting the ground for state corporations to achieve proper valuation in the event they come to market by way of initial public offers,” notes Kittony.

According to Timothy Wambu, head of equity research at Absa Bank Kenya, the government should take advantage of rising stock prices to drum up investor support for the privatisation agenda. He advocates a pragmatic approach to pricing, noting that investors will be looking to participate in transactions that provide a reasonable upside.

“Privatisation state-owned enterprises by listing at the NSE would benefit from a bullish stock exchange, as IPOs are likely to disappoint in a bear market. However, it is important to mention that successful IPOs need to be priced correctly to attract the broader market.”

The rise of retail investors

As share prices rise, there’s hope for increased participation from domestic retail investors. This could potentially boost household incomes, which have been squeezed by inflation and higher taxes. Wambu points out, however, that for retail investors to join the rally, it needs to be sustainable. Equities are not attractive to most retail investors, who prefer simpler assets like treasury bills, bonds, and real estate, which have historically performed better.

“Equities have underperformed other asset classes in recent years. A sustained rally that supports wealth creation, similar to what we are seeing in India, is what would draw retail investors back to the stock market,” Wambu notes. He adds that the NSE is working with brokerage firms, fund managers and other stakeholders to address the factors hindering increased retail investor participation in the country’s stock market.

“We’re keen on promoting financial literacy to help more Kenyans understand how to build wealth in the stock market,” he says, adding that the NSE is working closely with market participants to develop a mobile-based application that will facilitate direct market access for retail investors.

“Domestic retail investors’ participation in Kenya remains a huge untapped opportunity. Retail investors’ participation on the NSE remains significantly low, below 10%, with participation currently dominated by domestic and international institutional investors,” he notes.

Bond market picking up

It’s not just equities trading that’s on an upward trend in Kenya’s financial markets. Bond trading is also picking up at a feverish pace: Kittony notes that the volume of bond trading has more than doubled this year due to the return of tax-free infrastructure bonds issued recently.

“Total bond turnover for the first quarter of 2024 surged by 211.29% from Sh143bn recorded in Q1 2023 to Sh446bn [$3.4bn] in Q1 2024. This surge can be attributed mainly to the issuance of the newly introduced infrastructure bond,” he notes.

Retail investors have been particularly drawn to bonds in Kenya due to the rise in interest rates that has seen some bondholders rake in returns as high as 16% or 18% in an environment where inflation has oscillated between 5% and 8% in the past year.

The government has capitalised on this demand for bonds by amateur investors, launching a digital trading platform called DhowCSD that allows individuals to trade government securities online and via a mobile app. Data from the Central Bank of Kenya (CBK) shows that on 5 April retail investors held 12.52% of the country’s gross domestic debt, ahead of the 12.38% held by insurers and parastatals.

Kittony notes that the NSE is currently working to improve the efficiency of bond trading through the introduction of a hybrid bond market. The NSE recently received approval to operationalise a market in hybrid bonds, which combine features of stock and debt. It “will improve pre-trade transparency through the introduction of a Quotations Board that will provide investors with increased visibility into market quotes, thereby supporting more informed trading,” Kittony says.

Despite the uptick in equities and bonds trading on the NSE, investors are still wary of one asset class traded on the exchange: corporate bonds. Kenya’s once vibrant corporate bonds market has faced challenging times over the past couple of years, occasionally even teetering on the brink of total collapse due to investor concerns about the financial stability of issuers. In 2014 the corporate bond market in Kenya boasted a portfolio size of Sh71.3bn with 28 listings. However, it has since shrunk significantly, currently comprising only three investment-grade bonds.

The collapse of Imperial Bank in 2015 and Chase Bank in 2016 after investors pumped billions of shillings into their bonds eroded confidence in the corporate bonds segment. The stock market also faces a dearth of available products, particularly derivatives, exchange traded funds, and other sophisticated instruments. This is changing, according to Kittony.

“I am glad to note that NSE has made tremendous strides in developing various investment products. We are the second most product-diverse market in Africa, offering advanced investment products to enable investors to effectively deploy capital in Kenya.”

He tells African Business that the NSE is embarking on investor roadshows amid the current bull run to win the support of foreign investors.

“The NSE will be working with various stakeholders, including listed companies, to conduct international roadshows aimed at positioning Kenyan listed companies among international investors,” he says, noting that Kenyan stock market executives will be visiting the City of London, among other global financial centres, in the coming months.

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Lennox Yieke

Lennox Yieke is a business and finance journalist based in Kenya.