In its latest index review, the American investment advisory firm Morgan Stanley Capital International (MSCI) Inc has dropped Nairobi stock exchange listed firms from its index list due to the worsening business environment in Kenya.
The latest news comes after there were some rumors that Kenya’s dollar millionaires are also fleeing the country because of growing concerns over taxation, political instability, and wobbling economic growth.
Kenya lost over $345 million worth of foreign direct investment (FDI) and other investment inflows in three months as economic growth plummeted over increased political noise and unfriendly policies.
Last August, MSCI which advises global investors on which countries to put their money, warned that it will not implement changes as part of ‘upcoming’ Index Reviews for any securities classified in Kenya after feedback from market participants on the deterioration of liquidity in the Kenyan forex market.
Kenya, classified as a frontier market, joins a group of five countries (Nigeria, Egypt, Sri Lanka, and Bangladesh) whose listed firms were snubbed in MSCI’s latest index review due to a poor investment climate.
The market review report published in June 2022, MSCI highlighted difficult investment conditions that have impeded foreign investments in Kenya. These include dollar shortage, depreciating local currency, foreign capital repatriation restrictions and lengthy and tedious process of investor registration and account set up.
MSCI Index tracks the performance of global equities, bonds and real estate markets and advises foreign institutional investors including pension funds which markets to invest in.
The index currently tracks the performance of the shares of Safaricom, Equity and KCB in Kenya on dollar terms.
MSCI evaluates equity markets each year to determine whether they should be classified as a developed, emerging, and frontier or stand-alone market.
Last year, MSCI placed Kenya on a watchlist of troubled markets unfit for foreign investments, alongside Nigeria, Mauritius, Egypt, Sri Lanka, Brazil, Qatar and Ukraine.
“In light of currently observed market accessibility issues, MSCI will not implement changes as part of this Index Review for any securities classified in Bangladesh, Egypt, Kenya, Nigeria, or Sri Lanka,” MSCI said in a statement dated May 11.
According to the firm, the shortage of dollars in Kenya has continued to cause delays in foreign investors’ ability to repatriate capital.
“In Kenya, the queue for dollars in the foreign exchange market persists and continues to cause delays in foreign investors’ ability to repatriate capital. There is no offshore currency market. In addition, liquidity on the onshore currency market has been relatively low in the recent past.” the firm said.
In March, the Nairobi Securities Exchange (NSE), east Africa’s biggest bourse recorded a six-year low of 30.1% in foreign investment, data from Kenya’s Capital Markets Authority (CMA) shows.
According to CBK, foreign investors also shifted Ksh13.93 billion ($98.79 million) worth of equity investments from the Nairobi Securities Exchange in the three months to March 31, with local institutional investors opting to move funds from the equities market to the relatively stable bond market.
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