Morgan Stanley blocks Kenyan firms from global index on dollar shortage

Wednesday November 29 2023

A November 2023 review of MSCI indices affirmed the continued freeze on Kenyan index reviews. PHOTO | SHUTTERSTOCK


The Morgan Stanley Capital International (MSCI), an international trading indices firm, has barred new Kenyan companies from joining its global stock market platform, citing dollar shortages and financial turbulence facing Kenya in the latest blow to local firms seeking to sell shares to foreign investors.

The American investment advisory firm whose analysis influences major decisions by the global investment community looking at investing in African frontier markets has also extended its August 2022 decision to stop carrying out periodic reviews of the dollar denominated MSCI Kenya Index, a decision that will also affect Bangladesh, Egypt and Nigeria.

The firm says its decision was based on feedback from market participants about deteriorating liquidity in the Kenya’s forex market, which made it difficult for foreign investors to repatriate capital from the market.

Read: Kenya bourse ranked worst performing in Africa

The periodic reviews, which are carried out quarterly every February, May, August and November, allow for the introduction or removal of constituent companies and their weighting within the index.

This gives foreign investors an up-to-date picture of the state of the Nairobi Securities Exchange (NSE), allowing them to make informed investment decisions. A freeze of the review, therefore, discourages foreign inflows given that it effectively acts as a caution against the affected market.


When announcing the “special treatment” of the Kenyan index in August 2022, the MSCI said that “such changes include migrations between size-segments, additions of newly eligible securities, including sizeable IPOs”.

It also stopped making updates in Foreign Inclusion Factor (FIF), which indicates the proportion of issued shares that are deemed to be available for purchase in an equities markets by international investors.

The November 2023 review of MSCI indices affirmed the continued freeze on Kenyan index reviews.

“In light of currently observed market accessibility issues, MSCI will not implement changes as part of this Index Review for any securities classified in Bangladesh, Egypt, Kenya, or Nigeria…” said the MSCI.

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

The MSCI Kenya Index that measures the performance of large and medium sized firms, tracks three Kenyan blue chips—Safaricom, Equity Group and EABL— exposing them to foreign investors who have often dominated trading on these counters.

KCB Group is domiciled in the MSCI Frontier Markets Small Cap Index. The review moratorium means that even if other listed firms get to meet the criteria for inclusion in these indices, they will remain frozen out until the restriction is lifted.

This year, the performance of the Kenyan market as measured by the MSCI, has been the worst among the 10 African bourses tracked on the frontier and emerging markets indices, indicating some of the negative effects of the caution placed last year.

Kenya’s index has retreated by 47 percent, ahead of Zimbabwe (-25 percent), Nigeria (-23 percent), South Africa (-7.0 percent) and Tunisia (-4.0 percent). Others including Egypt, Senegal, Morocco, Ivory Coast and Mauritius have recorded positive returns of between four and 56 percent.

A combination of the weakening of the shilling and share price decline on constituent stocks has helped lower the performance of the Kenyan index.

Since the beginning of the year, the shilling has depreciated against the dollar by 19.4 percent to exchange at 152.97 units, as per the official Central Bank of Kenya (CBK) rate.

Read: Kenya shilling falls to historic low against dollar

Investor wealth as measured through market capitalisation dropped by Ksh541.3 billion in the period to stand at Ksh1.44 trillion.

Safaricom, which carries the biggest weight on the MSCI Kenya Index as well as the local shilling indices due to its status as the NSE’s largest stock by market capitalisation, has seen its share price fall by 39 percent since the turn of the year to Ksh14. Equity is down 18.5 percent in the period, while EABL has shed 34.1 percent this year.

The trio of stocks has come under pressure from persistent foreign investor selling, despite being among the few at the bourse that exercise a consistent policy of paying out dividends.

Overall, in the nine months to September, the NSE reported net foreign outflows of Ksh18.6 billion, although this was inflated by the Ksh22.7 billion March 2023 purchase of additional EABL shares by Diageo.