Kenya trails Africa peers on dollar returns in first half of 2023

Friday July 28 2023

Capital Markets Authority (CMA) CEO Wycliffe Shamiah during the Capital Markets Soundness Report media briefing at the authority's offices on January 30, 2023. PHOTO | DIANA NGILA | NMG


The equities market in Kenya posted the worst dollar-denominated returns for investors in the opening half of the year in contrast to peers.

The returns in six months to June as per data from Morgan Stanley Capital International Index (MSCI) show the market posted paper losses of 30.9 percent in contrast to losses of 24.3 percent for Nigeria and a contraction of 20.7 percent in Zimbabwe.

Equity markets in Tunisia, Morocco and Senegal were, however, outliers, bucking the trend to post dollar gains of 4.9, 14.8 and 3.6 percent respectively.

The Capital Markets Authority (CMA) has attributed the deteriorated returns to foreign investor flight as the investors assessed some African markets as riskier.

“Foreign investors took a cautious approach given the debt distress issues facing a number of African markets, dampening interest in the equities market. Nonetheless, there were pockets of attractive counters buoyed by strong performance, especially in the banking, commodities and manufacturing sectors,” the CMA noted.

Read: Foreign investors withdraw $345m from faltering Kenya economy


During the six months, the offshore investors posted a net selling position of Ksh15.33 billion ($107.77 million) where the bulk of sales happened in March.

Portfolio flows by the foreigners, however, surprised in June as they bought shares worth Ksh242.2 million ($1.7 million) to end a 15-month selloff run.

The positive surprise has continued into July with the past three weeks seeing foreign investors as net buyers in the market.

Analysts have, however, remained pragmatic on the direction of flows with expectations that foreigners will remain largely net sellers in the second half of the year, even as the outflows are expected to ease off.

Prevailing tighter monetary policy in advanced economies is expected to keep foreigners at bay as the investors scout for more lucrative returns in their home markets.

Read: Survey: Kenya business outlook dim

Central banks in advanced economies continue to tighten monetary policy with the US Federal Reserve for instance lifting its funds rate by a further 0.25 percent on Wednesday.

On Thursday, the European Central Bank raised its benchmark lending rate by a similar margin with the view of further anchoring inflation expectations.

The CMA has tipped inflows from foreign investors to return on the expectation that the leading central banks pause on further monetary policy tightening towards the start of 2024.

Further, the CMA says it has staged engagements with the MSCI to address their perception of barriers to foreign investors investing in Kenya.