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NSE Receives Boost as Index Provider Lifts Restrictions

The Nairobi Securities Exchange (NSE) is set for a significant resurgence following the lifting of restrictions by leading global index provider, Financial Times Stock Exchange (FTSE) Russell Index. This pivotal decision, spurred by improved access to dollars in the forex market, is poised to revitalize investor confidence in the Kenyan capital market.

In 2022, FTSE Russell had placed the Kenyan market under scrutiny due to reported challenges faced by foreign investors in accessing dollars from the local forex market for dividend repatriation and share sales. This had a notable impact on investor sentiment, resulting in reduced inflows and subdued trading activity.

However, following extensive engagements between FTSE Russell and Kenya’s Capital Market Authority over the past year, the market has been reclassified from “restricted” to “pass” status, effective March 2024. This reclassification is expected to reignite foreign investor interest, a crucial component driving approximately 60 percent of the NSE’s daily turnover.

The decision reflects a collaborative effort to address liquidity challenges and improve investor accessibility to the Kenyan market. While similar restrictions had been imposed by Morgan Stanley Capital International (MSCI) since 2022, the lifting of FTSE Russell’s restrictions marks a significant milestone for the NSE.

Despite ongoing challenges, such as continued net sales by foreign investors, the NSE remains optimistic about its outlook. Data from the NSE indicates net foreign sales of Sh2.3 billion in the first quarter of 2024, with March witnessing the highest selloff at Sh1.2 billion.

In light of this, the FTSE Russell’s decision is poised to inject renewed confidence and vitality into the Kenyan capital market. While obstacles persist, including the lingering restrictions by MSCI, the NSE is positioned for a promising trajectory, with enhanced liquidity and investor participation on the horizon.

photo source: Google

By: Montel Kamau

Serrari Financial Analyst

3rd April, 2024

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