The Nairobi bourse added Sh121.2 billion in investor wealth in the past one week to hit Sh2.115 trillion, as it joined a global equities rally that has followed a truce between the US and China in their tariff war, which had raised fears of recession.
The gains were backed by improved demand for blue chip shares, favoured by foreign investors, who recorded net purchases worth Sh246.2 million last week, breaking a run of weekly net selling that stretched back to the beginning of April.
Co-operative Bank of Kenya (15.4 percent weekly price increase), KCB Group (11.3 percent), East African Breweries Limited (8.3 percent), Safaricom (7.8 percent) and BAT Kenya (6.6 percent), stood out as the top gainers among the companies that are included in the MSCI frontier indices that are closely watched by external investors.
Foreign investors accounted for about 41 percent of the Nairobi Securities Exchange’s (NSE) weekly traded turnover, which rose by 82 percent to Sh3.25 billion.
The mini rally, according to analysts, reflected a general return to frontier markets by foreign investors, reversing the flight seen in April when US President Donald Trump announced wide tariffs on imports, with China absorbing the biggest charge at 145 percent.
After weeks of an escalating standoff, the US and China on Monday agreed to a temporary truce, which will see America slash the extra tariff on China from 145 percent to 30 percent for the next three months, while Chinese duties on US goods will be cut from 125 percent to 10 percent as talks on a firmer deal continue.
“The US–China talks that pointed to a more harmonious and predictable trade policy path had a ripple effect into the financial markets, where we saw foreign investors returning to frontier markets after persistent outflows since April,” said Ronnie Chokaa, a senior research analyst at Capital A Investment Bank.
“At the same time, we are seeing greater convergence between our domestic market and the global markets.”
Global shocks tend to have a negative effect on frontier and emerging markets, as they trigger investor flight to the relative safety of developed markets, the dollar and commodities such as gold.
Markets elsewhere also reacted positively to the news of the trade tariff truce, which will also see China lift export restrictions on rare earth minerals which are used in the US tech manufacturing sector.
In the US, the S&P 500 Index was up 4.6 percent in the week, while the Dow Jones industrial index gained 2.5 percent. European markets were also in positive movement, led by Germany's DAX index at 4.9 percent. London’s FTSE 100 Index was up 1.7 percent, while in Asian markets the Hang Seng Index in Hong Kong gained 4.3 percent, and Tokyo’s Nikkei 225 Index was up by 2.8 percent.
The positive movements last week were in contrast to the sharp losses that accompanied the initial announcement of trade tariffs by the US President in the first week of April, when the large global markets shed between 1.8 percent and four percent.
The NSE was also not spared from those selloffs, having shed Sh124 billion in market capitalisation within a three-session stretch between April 4 and April 9, before recovering some of the losses after the US announced a 90-day pause on reciprocal import tariffs above 10 percent.
The latest thaw in the US-China tariff war also filtered through to the fixed income markets, where the Kenya Eurobonds that trade in the London Stock Exchange saw an average drop of 0.5 percentage points in yields last week.
The yields are an indicator of the risk perception tied to Kenya sovereign debt at any one point by international investors—showing the rates which they would demand if the country were to issue fresh debt at the corresponding outstanding tenors of the various papers.
For instance, the secondary market yield on the 12-year, $1.2 billion (Sh155 billion) Eurobond that was issued in 2019 at eight percent (maturing in 2032), stood at 10.34 percent last Thursday, having declined from 10.79 percent the previous week.
Given the bond’s remaining period to maturity of seven years, its yield indicates that if the country was to float a new seven-year bond, investors would demand a return of about 10.34 percent in order to lend.
