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NSE share values fall deep amidst continuous US rate hikes

NSE facing the worst drops since its inception in 1954

Geoffrey Odundo, Chief Executive of the Nairobi Securities Exchange (NSE)

The value of shares at the Nairobi Security Exchange (NSE) has dipped by over Sh597 billion, the largest ever recorded since its inception in 1954.

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At the close of trading on December 22, 2022, the capitalization stood at Sh1.99 trillion, down from Sh2.95 trillion on the first day of trading when the year began.

The Sh597 billion loss is attributed to the rate hikes imposed by the US and the Russian invasion of Ukraine

Due to Covid-19 effects that were felt across all sectors in 2020, the NSE wiped out about Sh203 billion.

Early this month, the US Federal Reserve reinforced its inflation fight by raising its key interest rates for the seventh time this year.

This has forced their central banks to adjust rates upwards, thus attracting both domestic and foreign investors fleeing the NSE market.

The short-term money lending rate among financial institutions in the US now stands between 4.25 and 4.5 percent. This represents a sharp increase from the initial 0.08 percent at the beginning of the year.

In addition, the benchmark US 10 Year bond rate has increased to 3.86 percent, up from 1.63 percent at the beginning of 2022.

In times of global uncertainties, most investors tend to be attracted to western bonds and equities because they are viewed as a haven.

Many foreign investors who initially invested at the NSE have exited the market. Since foreign investor account for over half of the trading at the Nairobi House, their exit has harmed the flow of investments.

Some giants at the NSE such as Safaricom, Equity Group, and KCB have so far lost up to Sh612 billion.

Erick Musau, the executive director of research at the Standard Investment Bank (SIB), explains that the pressure blowing the NSE is external, and advises investors in the local market to face their worries.

"In the local market, companies have posted robust performance mainly in the banking sector. The good performance therefore, means that what is hurting the NSE is largely external, and investors in strong companies should not worry much.

"Company valuations are looking good at the moment, and the growth momentum for giants like Safaricom is impressive with players announcing interim dividends," said Mr Musau

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