The 18 NSE firms included on the Morgan Stanley Capital International (MSCI) indices saw their dollarised returns fall behind their continental peers in the first quarter of the year, as their prices declined in March amid a selloff caused by jitters over the Iran war.
Market data from MSCI shows that the NSE’s return in the period stood at 0.9 percent, trailing Nigeria, South Africa, Zimbabwe, Tunisia, Senegal, and Côte d'Ivoire, which had returns of between 9.6 and 44 percent during the same period.
Egypt, Morocco and Mauritius reported negative returns of -27.4 percent, -12.3 percent and -8.8 percent, largely on account of exchange losses for exiting investors.
In shilling terms, the overall return of the NSE as measured by market capitalisation stood at 9.7 percent (to Sh3.23 trillion), although this was boosted by the listing of Kenya Pipeline Company (KPC) on March 11 with a valuation of Sh166 billion.
Excluding KPC, the bourse’s market valuation expanded by 4.1 percent on shilling terms in the quarter.
Kenya’s NSE is represented by 18 companies on the MSCI frontier and small caps indices that are selected based on a number of metrics, including liquidity and financial stability, giving them the exposure to the foreign investors that boosts their price discovery.
Safaricom, Equity Group, EABL, KCB Group, Co-operative Bank and Standard Chartered Bank Kenya are listed on the MSCI frontier markets index, as at the most recent review of November 2025.
BAT Kenya, KenGen, Kenya Re, Kenya Power, DTB Group, Carbacid, Bamburi Cement, Jubilee Holdings, CIC Insurance Group, Williamson Tea Kenya, Centum Investment and HF Group are on the MSCI frontier markets small cap index.
The MSCI tracks the performance of selected large and medium-sized companies in 10 African frontier and emerging markets, as part of its global series of indices that are closely watched by foreign investors.
South Africa, which has the largest and most liquid stock market in Africa, and Egypt are classified as emerging markets by the MSCI, with the rest listed as frontier markets.
After ranking second on the continent with a return of 52.2 percent in 2025, the NSE has seen slimmer gains this year, partly due to the dip in prices in March after the start of the Iran war triggered a mini slump in the market.
The bourse shed more than Sh280 billion in valuation (market capitalisation) between the start of the Iran war on February 28 and the end of March, as foreigners and institutional investors sold blue-chip stocks.
The conflict hit financial markets hard, triggering an equities selloff as investors turned to holding dollars as a hedge, fearful of the negative impact of higher inflation due to elevated fuel and food prices.
The pressure from sellers pulled down share prices, contributing to the lower return on the global indices.
“Although transmission of the conflict into the local market was not exact, we did see some investors preferring to hold cash as they waited to see the outcome,” said Wesley Manambo, a senior research associate at Standard Investment Bank.
During the first quarter, foreign investors sold a net of Sh8.78 billion worth of shares from the NSE, with half of these sales (Sh4.28 billion) coming after the start of the Iran war on February 28.
At the same time, the shilling has been largely stable against the dollar, meaning that the dollarised returns for the Kenyan market have closely tracked those on shilling terms.
An appreciating local currency gives foreign investors an exchange gain when valuing their returns, given that they get more dollars upon conversion when exiting compared to their entry cost. In case of a depreciating local currency, they would get fewer dollars for repatriation.
This exchange rate is therefore a key consideration for foreign investors, given that it can either boost or diminish their true returns when compared to local currency returns.
