Kenya’s H1 equities performance review

Kenya’s fixed income markets have bounced back to pre-pandemic levels as global uncertainties taper off, signaling positive developments in the country's financial landscape. Senior Research Analyst at Aib-Axys Africa, Ronny Chokaa, recently shared insights on the performance of the equities market in the first half of the year. The Nairobi Securities Exchange (NSE) experienced a stable first half, with a notable 18.9% increase, primarily driven by the banking, energy, and telecommunications sectors. This resurgence has seen legacy players reclaim their peak positions and contribute significantly to the overall market performance. One of the highlights of the market's performance is the substantial increase in activity, with trading volumes jumping from $102 million in the first half of 2023 to over $360 million in the first half of 2024. This surge has also reflected in the market capitalization, which grew from $11 billion at the beginning of the year to $13.5 billion by June 2024, showcasing remarkable wealth creation within the market. A noteworthy shift has been the transition from foreign investor domination to increased domestic institutional participation as the key driver of the current bullish sentiment in the market. The influx of over $2 billion in net foreign investments in the first half of 2024 indicates a robust market environment that is not solely reliant on external influences. Looking ahead, the sustainability of this positive trend in the equities market raises questions about potential downside risks. The expectation of higher domestic financing due to government interventions may keep yields elevated, impacting investment flows into equities. Moreover, uncertainties around global interest rates and corporate performance pose challenges, with the potential for prolonged high-interest rates and escalating input costs affecting profitability. As the focus shifts to the yield curve, Ronny Chokaa delved into the dynamics shaping investor behavior. The NSE bond index has seen a 3.7% increase driven by declining benchmark yields, particularly in the five-year tenure. However, volatility persists in the short end of the curve, with fluctuating two, three, and four-year yields signaling mixed risk sentiments among investors. The Central Bank of Kenya's efforts to lower yields clash with investors' risk pricing strategies, leading to a divergence in the short end of the curve compared to the gradually cooling longer-term yields. Regionally, Kenya's yield curve remains influenced by expectations of prolonged high-interest rates, contrasting with Tanzanian curves at the lowest and Ugandan curves at varying levels along the tenures. In light of these market insights, the equities landscape in Kenya presents a mix of opportunities and challenges, with the resilience of domestic investors and evolving global dynamics shaping the future trajectory. The interplay between economic policies, market sentiments, and external factors will continue to influence investment decisions and market performance in the months ahead.