The Nairobi Securities Exchange (NSE) has received a significant boost following the addition of two more Kenyan-listed companies to the Morgan Stanley Capital International (MSCI) Inc. frontier markets indices. This development is expected to enhance the visibility of Kenyan equities among foreign investors, fostering increased inflows and strengthening confidence in the country’s capital markets.

The latest MSCI index review, released on February 11, 2025, added Standard Chartered Bank Kenya to its frontier markets index, alongside existing Kenyan stocks such as Cooperative Bank, Safaricom, Equity Group, East African Breweries Ltd (EABL), and KCB Group.

Additionally, HF Group, a leading housing finance institution, has been added to the frontier markets small-cap index, where it joins BAT Kenya, KenGen, Kenya Re, and DTB Group.

These changes will take effect after the close of business on February 28, 2025, as part of MSCI’s quarterly index reviews conducted every February, May, August, and November. The inclusion of these stocks expands Kenya’s presence on the global investment map, a much-needed boost following years of capital outflows from the NSE.

Understanding MSCI Indices and Their Impact on NSE

What Are MSCI Indices?

MSCI indices track global equity, bond, and real estate markets, helping institutional investors, including pension funds, hedge funds, and asset managers, determine the most attractive markets for investment. These indices categorize markets into four groups:

1. Developed Markets – Highly advanced economies like the United States, Japan, and Germany.
2. Emerging Markets – Rapidly growing economies such as China, India, and Brazil.
3. Frontier Markets – Smaller, less liquid markets like Kenya, Nigeria, and Bangladesh.
4. Stand-Alone Markets – Economies that do not fit into the other three categories due to unique market conditions.

Kenya’s classification as a frontier market means it is considered a high-growth, high-risk investment destination with potential for high returns and long-term growth. The MSCI indices are closely watched by foreign institutional investors, and stocks included in these indices often experience higher trading volumes and increased foreign investment.

Why This Inclusion Matters for the NSE

The addition of Standard Chartered Bank Kenya and HF Group to the MSCI indices comes at a critical time when Kenya is working to attract more foreign capital. Over the past five years, foreign investors have steadily reduced their holdings in Kenyan equities, leading to a decline in market activity. However, 2024 marked a turning point for the NSE, as several factors contributed to a revival in stock market performance:

• Increased investor appetite for banking stocks
• Relative stability in the Kenyan shilling
• Timely repayment of Kenya’s $2 billion Eurobond, boosting investor confidence

According to NSE CEO Frank Mwiti, the repayment of the Eurobond in 2024 was a key milestone in restoring macroeconomic stability and positioning Kenya on a sustainable growth trajectory.

“A key milestone was the timely repayment of the $2 billion Eurobond, which played a pivotal role in boosting investor confidence and alleviating concerns about potential default risks. This positive shift spurred heightened economic activity throughout the year,” said Mr. Mwiti.

NSE Market Performance: Rebounding from a Five-Year Slump

After five consecutive years of decline, the NSE rebounded in 2024, driven by renewed investor confidence and improved liquidity.

Market Turnover: Signs of Recovery

Market turnover—the total value of shares traded—grew by 20% in 2024, rising from Ksh88.23 billion ($683.95 million) in 2023 to Ksh105.23 billion ($815.73 million) in 2024.

This marked the first annual increase in equity trading activity since 2018, when turnover had reached Ksh175.65 billion ($1.36 billion).

The recovery in trading volume signals renewed market liquidity, meaning investors can more easily buy and sell shares without significantly affecting prices. This is particularly important for attracting institutional investors who require large-scale trading capacity.

Market Capitalization Growth

The total market value of listed shares on the NSE also saw substantial growth in 2024, rising from Ksh1.4 trillion ($10.85 billion) in 2023 to Ksh1.9 trillion ($14.72 billion) in 2024.

This $4 billion increase in market capitalization reflects rising investor confidence, increased corporate earnings, and strong performance in key sectors such as banking, telecommunications, and manufacturing.

Stock Market Indices Performance

1. NSE 20-Share Index:
   • Gained 33.94% (509.49 points) in 2024
   • Closed the year at 2,010.65 points
2. NSE All Share Index:
   • Surged by 42.96% (1,022.57 points)
   • Reached 3,402.8 points

These sharp gains indicate a broad-based recovery, suggesting that multiple stocks across different sectors contributed to the NSE’s positive performance in 2024.

Bond Market Performance

The NSE bond market also achieved a major milestone by surpassing the Ksh1 trillion ($7.75 billion) mark in cumulative turnover for the first time. This was driven by:

• Strategic bond market reforms
• Implementation of a hybrid fixed-income market
• Increased participation by institutional investors

Factors Driving Foreign Investor Interest in Kenya

The inclusion of more Kenyan stocks in the MSCI indices is expected to attract foreign institutional investors looking for high-growth opportunities in frontier markets. Key factors influencing this renewed interest include:

1. Economic Stability and Debt Management

Kenya’s successful repayment of the $2 billion Eurobond reassured investors about the country’s ability to manage its debt obligations. This removed the risk of sovereign default, which had previously discouraged foreign capital inflows.

2. Strengthened Regulatory Framework

The Capital Markets Authority (CMA) and NSE have implemented reforms to enhance market transparency, corporate governance, and investor protection. This has made Kenya a more attractive investment destination.

3. AfCFTA and Regional Trade Integration

The African Continental Free Trade Area (AfCFTA) is opening new investment opportunities by creating a single market for goods and services across 54 African countries. Investors view Kenya as a strategic gateway to the larger African market.

4. Growth in Key Sectors

• Banking: Strong performance from Equity Group, KCB, and Co-op Bank
• Telecommunications: Safaricom remains a dominant force in mobile banking and digital payments
• Manufacturing & Consumer Goods: Companies like BAT Kenya and EABL benefit from rising domestic consumption

Outlook for the NSE in 2025

Analysts expect continued growth in 2025, with further foreign investor inflows, stable macroeconomic conditions, and corporate earnings growth.

Key trends to watch include:

• Sustained demand for financial stocks
• Government policies on tax, investment incentives, and monetary policy
• Exchange rate stability and inflation control measures

With the MSCI index additions, the NSE’s strategic reforms, and economic stability, Kenya’s stock market is well-positioned for long-term growth and foreign capital attraction.

Final Thoughts

The inclusion of Standard Chartered Bank Kenya and HF Group in the MSCI indices is a testament to Kenya’s resilient financial market and improving investment climate. The NSE’s turnaround in 2024 marks the beginning of what could be a new growth era for Kenya’s capital markets.

For investors, this is a timely opportunity to explore emerging opportunities in Africa’s rapidly evolving financial landscape.

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photo source: Google

By: Montel Kamau

Serrari Financial Analyst

14th February, 2025