Why NSE has been ranked the worst performing in Africa

The Nairobi Securities Exchange (NSE) has been ranked the worst-performing African bourse in the first nine months of the year in dollar returns, highlighting the impact of foreign exits and global shocks on East Africa’s biggest stock market.

The ranking on the Morgan Stanley Capital International (MSCI) Index, a key source of investment information for foreign investors, comes on the back of another disputed analysis by Bloomberg that found the NSE was one of the worst-performing stock markets in the world, following the decline of the NSE All Share Index.

The MSCI Index that tracks three Kenyan blue chips—Safaricom, Equity Group and EABL— exposing them to foreign investors who have often dominated trading on these counters found that the Kenya Index shed 41.9 percent, to stand at 627.4 points, with the Zimbabwe Stock Exchange coming as the second worst performer at negative 34 percent.

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

Since the beginning of the year, the shilling has depreciated against the dollar by 16.9 percent to exchange at 148.45 units, as per the official Central Bank of Kenya (CBK) rate.

In shilling terms, the blue-chip NSE 20 Share Index retreated by 10 percent to 1508 points in the nine months to September 2023, while the NSE All Share Index was down 25.3 percent to 95.2 points.

Investor wealth as measured through market capitalisation dropped by 498.4 billion in the period to stand at Sh1.487 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 36 percent since the turn of the year to Sh14.70. Equity is down 21 percent in the period, while EABL has shed 23.5 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.

The NSE on Wednesday pointed to the higher dividend yields as one of the positives in the market currently, even as it admitted that the bourse has been buffeted by global shocks.

“As players in the global financial ecosystem, the performance of listed securities on the NSE is impacted by various macro-economic factors which have seen global equity markets experience significant pressure over the last few months,” said the exchange.

“In addition, the MSCI in its August 2023 review of Kenya, noted that the market dividend yield stood at 8.63 percent compared to 4.28 percent for the peer average group of stock exchanges in the MSCI Frontier Markets Index.”

These dividend returns are, however, competing against similarly attractive returns in the West. For instance, the 10-year US bond is offering a yield that is just shy of five percent.

As a result, there has been sustained portfolio outflows from frontier markets like Kenya, considering the added advantage the US has of being a safe haven market.

In September, foreigners extracted a net of Sh1.1 billion from the NSE, reversing inflows of Sh668.4 million seen in August.

July had seen net sales of Sh2.8 billion, which was in itself a reversal of net buys worth Sh133 million in June, continuing an up-and-down performance of the foreign desk this year.

Overall, in the nine months to September, the NSE reported net foreign outflows of Sh18.6 billion, although this has been inflated by the Sh22.7 billion March 2023 purchase of additional EABL shares by British multinational Diageo, which resulted in net outflows of Sh10.7 billion during that month.

On a wider economic scale, the foreign inflows or outflows into the NSE are a key indicator of the attractiveness of the economy to foreign investment, given the wide breadth of sectors available for investing in the market.

The other nine African markets tracked by MSCI’s emerging and frontier indices have had mixed performances this year, largely based on the situation of their currencies against the dollar.

Nigeria, South Africa, Tunisia and Zimbabwe have had negative returns ranging from 7.4 percent to 34 percent in the period.

The other five markets — Egypt, Botswana, Mauritius, Ivory Coast (from June) and Morocco — recorded positive returns of between 5.5 percent and 16.3 percent.

→ (email protected)