According to a recent report by Bloomberg, Kenya’s stock market has been experiencing a significant decline, making it the worst-performing market worldwide. The primary cause behind this downturn is the persistent shortage of foreign exchange dollars, which has resulted in foreign investors losing confidence in the market.
Since the beginning of the year, Nairobi’s All-Share Index, a market capitalization-weighted index encompassing all securities listed on the Nairobi Securities Exchange, has plummeted by 19%. This decline stands as the largest among nearly 100 global indexes tracked by Bloomberg.
The shortage of dollars has hindered foreign investors from repatriating dividends and capital gains for several weeks. This inability to access their returns has further eroded foreign investors’ trust in the Kenyan market.
The Kenyan shilling has experienced a depreciation of over 13% against the US Dollar since the start of the year. The country has been grappling with surging food and energy prices, straining government finances and leading to a decline in the value of the Kenya shilling. Consequently, the foreign currency reserves of the Central Bank of Kenya have hit their lowest level in 11 years, intensifying the scramble for dollars among importers.
Low Trading Volumes at the Stock Market
In addition to the stock market’s poor performance, trading volumes have also witnessed a substantial decline. The average daily volume of stocks is now approximately half of what it was a year ago, while bond market turnover dropped by 15% in the first three months of 2023.
Thys Louw, a portfolio manager at Ninety One UK Ltd, emphasized the importance of liquidity and the ease of entering and exiting a market. He noted that being unable to repatriate capital from a country carries significant costs.
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