Nairobi Securities Exchange: Impact of the Ongoing Middle East Conflict

Nairobi Securities Exchange(NSE) is expected to be impacted by the unfolding events in the Middle East, which is already creating some market uncertainty.

However, experts say the Middle East conflict will have minimal short-term effects on the Nairobi Securities Exchange.

With local investor participation having strengthened significantly over the past year, the Nairobi Securities Exchange is more resilient to foreign outflows.

What is being witnessed now, and could continue, is reduced market conviction, which often results in retracements, sideways price action, and stagnation.

 Nairobi Securities Exchange and Sector-specific impacts:

Kenya’ s Tea exports may face margin pressure due to higher shipping costs and logistical disruptions linked to the conflict.

Energy sector costs may increase as global oil prices rise, slightly impacting profitability for energy-related counters.

The escalation in the Middle East has pushed oil and gas markets into risk mode again, with prices reacting to disruptions around the Strait of Hormuz, as shipping activity has been curtailed by Iran as a response to US and Israeli strikes.

Since the first US strikes on Iran on Saturday, energy prices have soared, with the oil price increasing to 84$/barrel (Brent Crude) up 15% since the weekend).

Kenya’s tea industry is in dilemma and thrown into uncertainty as escalating conflict in the Middle East threatens vital export routes and a market that bought $32.8 million (KSh4.26 billion) worth of Kenyan tea in 2024.

But while near-term volatility may persist, this period could offer opportunities for long-term investors who focus on fundamentally strong companies temporarily affected by geopolitical concerns.

In summary, the NSE is likely to experience caution-driven sideways movement, with some sector pressures, but stronger local investor participation provides a stabilizing buffer, creating selective opportunities for disciplined long-term investment.

Daily statistics from the Nairobi Securities Exchange are already showing a market operating under external pressure and internal hesitation.

The broad tone is negative, with more counters closing in the red and the Nairobi All Share Index (NASI) shedding ground. This weakness is not isolated to company fundamentals — it is largely sentiment-driven.

The current global war environment is exerting pressure on foreign investor participation across emerging and frontier markets, including Kenya.

When foreign flows slow, liquidity on the Nairobi Securities Exchange thins out — and thin liquidity magnifies price swings. This is structural, not necessarily fundamental. A significant number of local investors believe markets will be negatively impacted.

Meanwhile the Capital Markets Authority(CMA) is seeking to increase the transaction levy charged by the Central Depository and Settlement Corporation (CDSC) from 0.08% to 0.12% of transaction value.

If adopted, this would slightly increase total trading costs at the Nairobi Securities Exchange

What This Means for Investors:

For Nairobi Securities Exchange trades below KSh100,000, the maximum transaction cost rises from 2.10% to 2.14%. For trades above KSh100,000, the maximum cost rises from 1.70% to 1.74%. However, Brokerage commissions and other statutory fees remain unchanged.

Illustratively, a KSh34,500 transactions would cost approximately KSh13.80 more under the proposed structure.

The regulations are currently before Parliament for consideration.

While the increment appears small, cost structures matter — especially in a market where Retail participation has strengthened significantly over the past year. Higher marginal costs may slightly affect smaller, frequent trades. Active traders will feel the increment more than long-term investors. For high-turnover strategies, even minor cost increases compress net returns. But for long-term dividend and capital gains investors, the impact remains modest.

Market analysts maintain that the increase in transaction costs would lead to a subtle market behaviour shift. Higher friction costs often reduce excessive churn; encourage longer holding periods and increase entry discipline

Bottom Line

The proposed CDSC adjustment is not structurally disruptive, but it modestly increases the cost of liquidity. Strategy, valuation discipline, and earnings positioning remain far more important drivers of long-term performance than marginal fee adjustments.

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