The Nairobi Securities Exchange (NSE) has plummeted to levels not seen since the peak of the Covid-19 pandemic in 2020, wiping out Sh627.5 billion in investor wealth since the start of the year.
For the first time since August 2020, when Kenya was battling Covid-19 restrictions such as daily nationwide curfew, which resulted in layoffs, job cuts, and business closures, the market capitalisation fell below Sh2 trillion.
All stocks were worth Sh1.965 trillion, down from Sh2.636 trillion at the start of the year, while the NSE main index fell to a 19-year low due to foreign investor flight.
The NSE-20 Share Index finished at 1,644 points, the highest level since April 2003.
The market is being weighed down by a reduced appetite for emerging markets following a rise in interest rates in developed markets such as the United States, which is currently battling high inflation, forcing central banks to raise interest rates.
This capital flight to the US market, where inflation is at a 40-year high of 8.6 percent, has resulted in steep price falls for blue-chip firms like Safaricom, Equity Group, and East Africa Breweries Limited (EABL), which are popular with foreign investors.
These stocks dominate the foreign trading desk and are now trading at one to two-year lows, despite the fact that their key business indicators, particularly profitability, remain strong.
“Company fundamentals are not the issue at the moment. The main reason behind the market slump is the Western rate hikes, which are affecting emerging markets,” said Melodie Ndanu, an analyst at Genghis Capital.
“The dollar has also appreciated against global currencies, which combined with the overhang from the upcoming election, has reduced the inflows into the local capital market.”
The benchmark US 10-year bond rate — a closely watched gauge of market inflation expectations over the next decade — has climbed to 3.48 percent, its highest since April 2011.
This has sent stocks tumbling across the globe as investors pulled out of equities on the expectations that inflation would surge. Smaller markets like the NSE have taken deeper hits because investors, particularly foreigners, get attracted to the western bonds and equities that are viewed as safe havens in times of global uncertainty.
The current high inflation in advanced markets is the result of high energy and food prices following Russia’s February invasion of Ukraine, which cut off wheat and fuel exports from the Black Sea region.
Supply chain constraints have also increased the cost of goods, owing primarily to higher shipping costs, contributing to inflationary pressures.
Similar price pressures have hit the Kenyan economy, where essential food items like flour and cooking oil have skyrocketed, pushing inflation to a 28-month high of 7.1 percent.
Fuel prices, which affect the cost of other goods in the economy, are also at an all-time high, retailing at Sh159.12 per litre of petrol and Sh140 for diesel in Nairobi.
