The decision by the Monetary Policy Committee (MPC) to raise the Central Bank Rate (CBR) to a 12-year high of 13 percent has led to a continued decline in the performance of the Nairobi Securities Exchange (NSE), as investors shifted their focus to fixed income securities.
In the week following the announcement of the new rate, equities on the market experienced a loss of KES 16.0 billion in valuation.
During the same period, investors withdrew KES 63.2 million from the NSE, contributing to the ongoing net outflows in portfolios, which totaled KES 101.8 million.
This trend has persisted over the past five months, with foreign investors withdrawing KES 178.2 million in the previous month alone. Over the last year, the NSE has seen a 27.5 percent decrease in paper wealth, amounting to KES 547 million.
Additionally, stocks of major companies in the exchange showed a downward trend, with Safaricom declining by 1.9 percent to KES 13.2 from the previous week’s KES 13.5, and KCB Bank declining by 5.7 percent to KES 19.1 from the previous week’s KES 20.2.
A senior researcher at Standard Investment Bank noted that it was expected for investors to favor fixed income securities due to the rise in the CBR.
“We hypothesize that investors will continue to prefer the fixed income asset class due to higher interest rates, a trend that is expected to strengthen further following the recent adjustment of the CBR,” observed Stellar Swakei, a senior research associate at Standard Investment Bank.
She added, however, that she anticipated a shift in momentum towards the equities market later in the year, with the likelihood of a softer monetary policy.
“That being said, we believe that the pendulum will swing in favor of the equities market in the second half of 2024, as monetary policy is expected to soften. Nonetheless, fixed income will remain a top choice for investors throughout the year as they seek stability amidst perceived risks,” she stated.
