Kenyan bourse outperforms peers in Africa

The Nairobi Securities Exchange (NSE) has been making headlines recently as it outperforms its peers in Africa in profitability this year. This success is attributed to the price gains from large top-tier stocks, boosting its prospects for attracting capital inflows. The NSE index is heavily driven by market capitalization, with a few key stocks dominating the market. Safari com, the leading telecommunications company, holds over 60 percent of the market capitalization, followed by a few key banks. These five counters control close to 80 percent of the overall market capitalization of the NSE. Safari com recently hit a record high of 43 Shillings per share, with banks like Equity and KCB also on an upward swing. The positive performance of these top-tier companies has contributed to the recent uptick in the NSE index. However, questions have been raised about whether the NSE is a fair representation of the economy, considering its heavy reliance on a few blue-chip companies. While the NSE reflects the capital markets, there is a disconnect between the market sectors represented in the index and the actual sectors contributing significantly to the GDP. The telco sector and banking dominate the NSE index, while agriculture and other key sectors have a higher share of GDP. Despite this disconnect, the NSE has not proven to be a leading indicator of GDP growth. Foreign participation in the NSE has been significant, with foreigners dominating the market share for the first seven months of the year. However, there is caution in foreign direct investments in the country, highlighting the disparity between the capital markets and the real economy. The recent performance of Safari com, hitting a record high, has been attributed to its move to enter the Ethiopian market. The market had priced in this move since May, but recent developments, such as the announcement of a mobile money license in Ethiopia, have further boosted Safari com's stock value. Investors are optimistic about the potential growth in revenue from the Ethiopian market, particularly with the addition of mobile money services. The positive outlook for Safari com and other blue-chip companies is expected to continue driving the trajectory of the NSE index. As the earnings season unfolds, with banks and insurance companies releasing their results, analysts anticipate strong performances from key players like Equity and KCB. Lower provisions and better financial results are expected to lead to interim dividend payouts, further boosting investor confidence in these top-tier companies. Despite some capital flight in the past, foreign investors are predicted to return to the NSE, as positive earnings reports and dividend payouts attract their attention. The NSE's record highs and the performance of top-tier stocks continue to make it a standout performer in Africa's capital markets, despite the disparities between the index and the actual economy.