NSE Market Slumps As Foreign Investors Exit And CBK Eases Policy

The Nairobi Securities Exchange (NSE) closed on a subdued note today, as investors navigated a challenging trading environment marked by declines across key indices. The Nairobi All Share Index (NASI) registered a 0.5% dip, signaling a bearish sentiment that extended across the board. Simultaneously, the NSE 10, NSE 20, and NSE 25 indices each weakened by 0.1%, reflecting cautious trading among investors.

NSE Market Indices Performance – Illustrates the percentage change in NASI, NSE 10, NSE 20, and NSE 25. Source; SokoDirectory.com

A closer look at market turnover reveals a 7.6% decline, with total traded value falling to USD 4.5 million. This downturn was partially offset by increased local investor participation, which surged to 63.9% of total turnover, compared to 44.3% in the previous session. This shift underscores a growing inclination among domestic investors to take positions amid foreign exits, possibly spurred by evolving global risk factors.

Safaricom Leads Activity But Suffers Heavy Losses

Safaricom remained the most traded counter, accounting for 35.2% of total equity turnover. However, heightened selling pressure—primarily from foreign investors—saw its share price retreat by 1.6% to close at KES 18.15, marking it as the session’s worst performer among major stocks. The telecommunications giant’s decline mirrors ongoing uncertainty among investors, especially as foreign capital outflows persist in search of more stable investment climates.

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Stock Price Changes – Highlights the movement of key stocks including Safaricom, Equity Group, I&M, KCB, EABL, Unga Group, and EA Cables. Source; SokoDirectory.com

Among the banking counters, Equity Group and I&M recorded marginal declines of 0.1% and 0.6%, settling at KES 35.25 and KES 48.35, respectively. KCB Group, on the other hand, held firm at KES 45.10, maintaining its price levels in an otherwise weak financial sector trading session. These movements suggest that while banks are still drawing investor interest, cautious sentiment prevails ahead of anticipated regulatory and monetary shifts.

EABL Gains as Unga Group Surprises, EA Cables Falters

East African Breweries Limited (EABL) emerged as the day’s best-performing major mover, climbing 2.7% to KES 183.75. This upward momentum was likely driven by renewed investor confidence in its resilience against economic headwinds. Meanwhile, Unga Group posted the highest percentage gain of the day, surging 9.9% to close at KES 20.55.

Conversely, EA Cables bore the brunt of negative sentiment, plummeting by 9.8% to KES 2.68. Such a significant decline underscores investor concerns over its financial position and potential liquidity challenges, making it a counter to watch closely in upcoming sessions.

Foreign Outflows Persist as Safaricom Leads the Sell-Off

Foreign investors continued their exit for the ninth consecutive session, recording net outflows of USD 1.4 million. Safaricom led the sell-off, reflecting heightened risk aversion and capital flight towards safer assets. However, foreign investors were net buyers in EABL, signaling confidence in its long-term fundamentals despite broader market concerns.

Investor Participation – A pie chart showing the share of local vs. foreign investor turnover. Soure; SokoDirectory.com

Monetary Policy Easing: A Double-Edged Sword?

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A major development shaping investor sentiment was the Central Bank of Kenya’s (CBK) decision to cut the Central Bank Rate (CBR) by 50 basis points to 10.75%. This marks the fourth consecutive cut in an effort to spur economic activity. Additionally, the Monetary Policy Committee (MPC) reduced the Cash Reserve Ratio (CRR) by 100 basis points to 3.25%, a move expected to inject liquidity into the banking system and encourage lending to the private sector.

While these measures are designed to support economic recovery, concerns linger regarding their potential impact on inflation and currency stability. The MPC highlighted that although overall inflation remains within target and core inflation is on a downward trend, economic growth has slowed, necessitating proactive intervention.

Banks Under Scrutiny as CBK Enforces Interest Rate Adjustments

The CBK has taken a firm stance on ensuring that banks pass on the benefits of these policy adjustments to borrowers. Under the Business Laws (Amendment) Act 2024, banks that fail to reflect these changes in lending rates could face penalties up to three times the realized gains from non-compliance. In a show of regulatory muscle, five banks are currently under CBK inspection to assess whether their lending practices align with the cost of funds.

The coming weeks will be crucial as investors gauge the effectiveness of these monetary policy shifts. While liquidity injections should theoretically boost business activity, the onus is on financial institutions to translate these adjustments into tangible benefits for borrowers and businesses. Investors will be closely monitoring corporate earnings and credit growth data to assess the broader impact on the market.

As the NSE navigates this evolving landscape, investor sentiment remains cautiously bearish. While select stocks such as EABL and Unga Group showed resilience, the sustained foreign outflows and price declines in heavyweights like Safaricom signal that the market is still grappling with broader macroeconomic concerns. The unfolding regulatory developments will play a critical role in shaping market direction in the coming sessions.

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