Kenya’s equities market is surging, with the Nairobi All Share Index gaining 4.8% this week and 9.5% so far this year. This marks a sharp turnaround from 2023 when the index plunged 27.7%.
The rebound is being driven by improved earnings from listed companies, prompting investors to buy stocks for higher returns. Banking and communications shares like Stanbic Bank, KCB Bank, Absa Bank and Safaricom have seen particularly strong gains.
The revival in equities is expected to shift investor sentiment away from fixed income securities like bonds and money market funds. Analysts forecast Kenyan company earnings will grow 11% annually in 2024, making stocks more attractive than lower-yielding bonds and money market holdings.
“We may observe a decrease in demand for fixed income securities, potentially resulting in higher yields and lower prices,” said Janet Mburu, a fixed income analyst at EFG Hermes.
Government bonds, seen as lower-risk assets, may hold up better. But corporate bonds, whose performance is tied to economic growth and earnings, could come under more selling pressure as money rotates into stocks.
In 2023, yields on Kenyan bonds surged amid global economic turmoil, a weakening shilling currency and concerns about the country’s debt levels. While the yield curve has stabilized recently, the comeback in stocks poses a fresh threat to corporate debt.
Still, some fund managers say they’ll maintain a balanced approach, holding both bonds and equities in client portfolios this year.
