Activity at the Nairobi Securities Exchange (NSE) has dampened following a decision on Wednesday by the US Federal Reserve Department at its September 17th meeting to cut its benchmark lending rate by 0.25 percentage points.
This brings borrowing costs in a range of 4% to 4.25% – the lowest level since late 2022. The move – the bank’s first rate cut since last December – brings down cost of credit across the US to between 4% and 4.5%.
This monetary policy shift, pushed on by President Donald Trump’s administration, has also triggered a flight by foreign investors in frontier markets, the Nairobi Securities Exchange(NSE) included.
In anticipation of the fed rate cut, foreign investors have for the past three weeks been fleeing from several big counters at the NSE. Data shows that between September 15-17th, foreign investors have sold KSh 3.26 billion worth of stocks against buys worth KSh 311 million, a net outflow of KSh 2.94 billion.
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According to data from the NSE, Equity turnover dropped sharply to KSh 377.3 million this Thursday from KSh 3.3 billion when trading ended on Tuesday.
All indices were also down including the NSE ALL SHARE INDEX (NASI), which lost 2.58 points to close at 175.02. The NSE 20-SHARE INDEX lost 42.48 points to close at 2945.51. The NSE 25-SHARE INDEX shed 61.26 points to close at 4552.16 while the NSE 10-SHARE INDEX was down 27.66 points to close at 1746.02.
According to investment insiders, the past three weeks have seen foreign investors at the NSE taking profits or exiting, likely due to the anticipation of FED rate cuts. This trend is consistent with historical patterns, where rate cuts lead to a rally in the US equities market, making it more attractive for investors.
The US equities market had already started rallying, reflecting the priced-in expectations of a rate cut. Foreign Investors at the NSE are now busy cashing in to take strategic positions in their home markets, benefiting from the rally impacted by the FED rate cuts.
NSE was already ripe for harvest, having rallied significantly in recent weeks. According to Jeff Buchbinder, a chief equity strategist at LPL Financial, the US market had already benefited from the rate cuts, with the stock market gaining over 24% in the past 12 months.
While rate cuts harm NSE and other frontier exchanges in the short to medium term, potential outflows from US markets could benefit these markets later, according to analysts.
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