By NJIRAINI MUCHIRA

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Kenya's capital markets overcame a turbulent year to record 11.5 per cent growth in market capitalisation for companies listed on the Nairobi Securities Exchange.

During the year, Kenya’s capital markets faced internal challenges, ranging from interest rates capping, decline in production due to drought and elections and external shocks like Britain’s decision to exit the European Union and the election of Donald Trump as US president.

Acccording to the Capital Markets Authority (CMA), the challenges impacted listed companies, with many issuing profit warnings and others being forced into reduced operations and reducing staff in order to maintain profitability.

Despite the shocks, market capitalisation increased from $18.5 billion in the 2015/16 financial year to $21.4 billion.

During the year, the NSE 20-share index demonstrated resilience having experienced a significant decline of 19.90 per cent in the first half of the year, falling below the 3,000 point mark only to resurge by 29 per cent and close the year at 3,607.18 points.

“The earlier decline in the index in the first half of the year was mainly influenced by depressed performance of listed companies as reflected in the high instances of profit warnings and the uncertainty arising from the impact of the capping of the interest rates domestically,” said CMA in its 2016/17 annual report.

The report adds that the second half of the year recovery was driven mainly by renewed interest in the market following introduction of new products notably the listing of Kenya’s first Exchange Traded Funds and the M-Akiba bond.

Although the NSE ended the financial year on a high, the capping of interest rates in August 2016 impacted the stocks of the 11 listed banks before they recovered in the second half.

“On average, banking stocks performed dismally driven by the interest rate caps. Initially, investors had overstated the impact of the rate caps which resulted in not selling position.

“After tracking banks’ performance in the second half of the year, investor confidence has since rebounded,” said Churchill Ogutu, researcher at Genghis Capital.

He added that for the better part of the year, Safaricom was the most liquid stock whose share price was largely driven by foreigners.

The subdued level of trade on bank stocks had ripple effects in terms of equity turnover, which declined 11.85 per cent from $1.7 billion to $1.5 billion.
During the year, the bond market recorded a 6.9 per cent increase from $3.2 billion to $3.9 billion.