The 18 NSE companies included in the Morgan Stanley Capital International (MSCI) indices saw their dollar returns fall compared with their continental peers in the first quarter of the year, as jitters over the Iran war sent their prices tumbling in March.
MSCI market data showed NSE returned 0.9 per cent during the period, lagging behind Nigeria, South Africa, Zimbabwe, Tunisia, Senegal and Côte d'Ivoire, whose returns ranged between 9.6 per cent and 44 per cent during the same period.
Egypt, Morocco and Mauritius reported negative returns of -27.4 percent, -12.3 percent and -8.8 percent, mainly due to exchange losses attributed to exiting investors.
In shilling terms, the NSE total return as measured by market capitalization was 9.7 per cent (up Sh3.23 trillion), although this was boosted by the listing of Kenya Pipeline Company (KPC) with a valuation of Sh166 billion on March 11.
Excluding KPC, the exchange's market valuation in shilling terms rose 4.1 percent in the quarter.
Kenya's NSE is represented by 18 companies on the MSCI Frontier and Small Cap indices, which are selected based on a number of metrics including liquidity and financial stability, giving them exposure to foreign investors that fuels their price discovery.
As of the most recent review of November 2025, Safaricom, Equity Group, EABL, KCB Group, Co-operative Bank and Standard Chartered Bank Kenya are listed on the MSCI Frontier Markets Index.
BAT Kenya, KenGen, Kenya Re, Kenya Power, DTB Group, Carbacid, Bamburi Cement, Jubilee Holdings, CIC Insurance Group, Williamson Tea Kenya, Centum Investments and HF Group are on the MSCI Frontier Market Small Cap Index.
As part of its global series of indices, MSCI tracks the performance of selected large and medium-sized companies in 10 African frontier and emerging markets, which are closely watched by foreign investors.
South Africa, which has the largest and most liquid stock market in Africa, and Egypt are classified by MSCI as emerging markets, while the rest are listed as frontier markets.
After ranking second on the continent with a return of 52.2 per cent in 2025, the NSE has seen lower gains this year, partly due to a drop in prices in March after the start of the Iran war led to a short market downturn.
The exchange's valuation (market capitalization) declined by more than $280 billion 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 a selloff in equities as investors turned to the dollar to hedge, fearing the negative impact of higher inflation due to rising fuel and food prices.
Pressure from sellers dragged down share prices, contributing to lower returns on global indices.
“Although the transmission of the conflict to the local market was not perfect, we saw that some investors were 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 shares worth a net Sh8.78 billion from the NSE, half of which sales (Sh4.28 billion) occurred after the start of the Iran war on February 28.
Also, the shilling has remained largely stable against the dollar, meaning that dollar returns for the Kenyan market have closely tracked shilling terms.
The appreciation of the local currency gives foreign investors an exchange advantage when evaluating their returns, given that they get more dollars on conversion at the exit than their entry cost. In the event of a depreciation of the local currency, they will receive fewer dollars to repatriate.
The exchange rate is therefore an important consideration for foreign investors, given that it can increase or decrease their real returns compared to local currency returns.