Performance indicators: Can Kenya’s markets inspire investment in 2024?

Last month, the Central Bank of Kenya increased the Central Bank Rate (CBR) from 10.5% to 12.5%, marking its third raise in 2023, in an effort to contain the depreciation of the Kenyan shilling against the dollar which was exerting pressure on prices. As at December 8^th 2023, the shilling was trading at Sh153.34 per dollar. Into the new year, the efforts of CBK are yet to bear fruits as the shilling as depreciated further to trade at Sh158.30 as at January 8^th 2024.

In terms of year to year, the shilling has depreciated at an alarming rate, having exchanged at Sh123.59 per dollar as at January 9^th 2023. This has been resulted by a number of policy changes, the increase of interest rates by the Federal Reserve Bank of the United States and effects from the Russo-Ukraine conflict.

Apart from an increase in the value of the shilling against the dollar, there has also been an increase against the Sterling Pound and Euro as well. As at January 8^th 2024, the shilling exchanged at Sh200.17 per pound and Sh172.69 per euro as compared to Sh192.76 per pound and Sh165.28 per euro as at December 8^th 2023.

It has been good news in terms of inflation as the rate has continued to decrease from October when it stood at 6.92% to 6.63% for December 2023. This has been a welcoming sight compared to February when it reached its highest for the year at 9.23% according to data from the CBK. The inter-bank rate, the rate of interest charged on short-term loans between banks, on the other hand stood at 13.3% as at January 8^th 2024 as compared to 14.44% as at December 29^th 2023.

2023 continued to be a bad year for the Nairobi Securities Exchange (NSE) as the bourse continued to record a bear run. NSE witnessed a fourth straight year of net foreign outflows as foreigners continued to abandon the bourse in search for a market with better returns. The equities market was the most affected in 2023, as it was the worst performing major asset class leading to the NSE to shed 28% or Sh554 billion of its investor’s wealth.  

However, despite the bad year, 2024 is expected to turn around fortunes for the bourse. In fact, already the NSE is recording some improvement as the Nairobi All Share Index (NASI) which tracks the performance of all stocks managed to increase from 92.11 points in the last week of 2023 to 93.26 points as at January 8^th 2023. The Nairobi Stock Exchange (NSE) 20 Share Index, which is a market capitalization weighted index that comprises the top 20 companies listed on the NSE, also witnessed some growth from 1,501.16 to 1520.82 as at January 8^th 2024.

The NSE 25 share index and NSE 10 index also increased to 2,436.28 and 930.39 respectively. This has seen the market capitalization of the bourse increase from Sh1.44 trillion as at last trading day of 2023 to Sh1.46 billion as at January 8^th 2024. However, despite the increase, the numbers are still far off from the those recorded at the end of 2022, which stood at Sh1.99 trillion.

The slight improvement has also not been felt across board, the bourse is till facing an exodus in the equities market. The equity turnover has taken quite the fall from Sh402.94 million as at the last trading last year to Sh47.42 million as at January 8^th 2024. The massive decrease can be accredited to most of the companies with the highest turnovers in the bourse taking a hit.

For instance, Safaricom which held 67.19% of the total market turnover as at last day trading in 2023 decreasing from Sh270.75 million to Sh115.3 million. This saw its percentage of total market turnover reduce to less than 50% (47.99%). Equity and KCB, which added made up the top three markets, also recorded decreases in their turnover to Sh67.33 million and Sh15.84 billion respectively as at January 5^th 2024 from Sh77.31 million and Sh37.42 million as at the end of 2023. As a result, Equity group managed to record an increase in the percentage of total market turnover from 19.19% to 28.02% while KCB recorded a decrease from 9.29% to 6.59%. The move also witnessed the likes of Co-operative bank and Standard Chartered increase their percentage of total market turnover from 0.63% and 0.54% respectively to 5.10% and 3.06% as at January 5^th 2024.

Apart from the equities market, the bond market also took a hit as the bond turnover took a massive drop from Sh2.55 billion as at last trading day of 2023 to Sh638.63 billion as at January 5^th 2024. There is a need to tackle the challenges that have seen the equities and bond market continue to lose millions.

Investors are crucial; attracting and keeping them in the market will be key to the bourse’s success. The market is a clear indication of how the economy is fairing, if it takes the direction of 2023, then the economy will slow down further.