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Troubles at NSE as prices and benchmark fall

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By JAMES ANYANZWA

Tough times loom for the bearish Nairobi Securities Exchange (NSE) as a cocktail of global and domestic factors combine to push the benchmark below 1,700 for the first time in 20 years, signaling a muted activity and a free fall in stock prices in the 68-year-old market.

East Africa learned that the drop in turnover on the NSE and the fall of the NSE-20 Share Index to a low of 1,681.8 last week are largely the result of massive selling by fleeing foreign investors frontier and emerging markets seeking safer havens following rising interest rates in the United States and news that Sri Lanka has defaulted on its debt obligations for the first time in its history story.

The situation has been aggravated by events in the local environment, including uncertainty surrounding the upcoming general election, weakening currency, shortage of dollars, rising cost of living and general investor apathy. individuals.

The last time the benchmark, which measures the performance of 20 blue-chip companies on the NSE, fell below 1,700 was in 2002, when it hit 1,087 from 1,935 in 2003.

Perceptions of a weaker currency are compounding the problem, Paul Mwai, deputy chairman of the NSE, told The EastAfrican last week.

The IMF has opened bailout talks with Egypt and Tunisia, two major wheat importers from Russia and Ukraine, and with Pakistan, which has imposed power cuts due to high energy costs imported. Turkey is battling 70% inflation but has so far avoided the need for a bailout.

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Dollar shortage

The scarcity of US dollars in the Kenyan economy has negatively impacted trading by foreign investors who control over 50% of daily trading activity in the stock market.

NSE has historically recorded foreign investor participation in the range of 60% to 70% between 2019 and the first half of 2021.

But their activity on the stock exchange fell to 54.88% in the three months to March this year from 57.73% in the three months to December 2021, according to data from Kenyas Capital Markets Authority.

Cytonn Investments attributes the price declines of most stocks, especially large-cap stocks on the exchange, to the surge in sales.

In May, the Federal Reserve took steps to bring soaring US inflation under control by announcing the largest interest rate hike in more than 20 years.

The Fed’s benchmark rate was raised 0.5 percentage points to a target rate range of 0.75% to 1%, the biggest increase since 2000.

This followed a 0.25 percentage point increase in interest rates in March this year.

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