The prolonged stability of the shilling at Sh129 against the dollar this year has knocked the Nairobi Securities Exchange (NSE) from the top spot in Africa in terms of dollarised returns to foreign investors.
The overall dollar returns on the 14 NSE listed firms that are included on the globally watched Morgan Stanley Capital International (MSCI) emerging and frontier market indices stood at 4.4 percent in the first two months of the year.
Out of the 10 African markets included in the indices, only Egypt (-1.9 percent) and Zimbabwe (4.3 percent) have a lower year to date return than Kenya. The top returning markets are Morocco at 15.4 percent, and Nigeria at 10.6 percent.
The NSE was the top performer in Africa in 2024 as per the MSCI index with a gain of 65.3 percent, which was nearly double the next best return by Côte d'Ivoire at 34.9 percent.
With the other markets providing higher returns this year, foreign investors leaned towards the exit side at the NSE with cumulative net sales of Sh2.33 billion in January and February.
There are 14 Kenyan stocks included on the MSCI frontier and small caps indices. Safaricom, Equity Group, East African Breweries Plc (EABL), KCB Group, Co-operative Bank of Kenya and Standard Chartered Bank Kenya are listed on the MSCI frontier markets index, while BAT Kenya, KenGen, Kenya Re, Kenya Power, DTB Group, Carbacid Investments, Bamburi Cement and HF Group are on the MSCI frontier markets small cap index.
The good performance for Kenya last year was fuelled by a mix of share price gains of between 20 and 90 percent on a majority of the constituent stocks, and the shilling gaining by 21 percent versus the dollar.
In the first two months of this year however, the shilling has appreciated against the dollar by just 0.1 percent, moving from a rate of Sh129.29 to Sh129.15.
An appreciating shilling gives foreign investors an exchange gain when valuing their returns—given that they get more dollars for every shilling when exiting compared to their entry cost.
In case of a depreciating local currency, they would get fewer dollars for repatriation.
This exchange rate is, therefore, a key consideration for foreign investors, given that it can either boost or diminish their true returns when compared to local currency returns.
Stock gains among the MSCI index list have also been more muted compared to last year, especially on the MSCI frontier markets index, which carries a larger weight in the overall Kenya performance.
In the year to date, the top gainers on the MSCI Kenya frontier index are KCB and StanChart at 8.1 percent and 7.3 percent, while Safaricom, which carries the largest weighting on this index due to its large market capitalisation and liquidity, has a gain of 5.3 percent.
On the small caps index, the top performers in the period are HF Group (78.3 percent), Kenya Power (44.3 percent) and Kenya Re (41.4 percent), but their lower weighting in comparison to the large cap counters limits their impact on the overall Kenya return.
