How The Nairobi Stock Exchange Performed in 2006

The NSE closed year 2006 with a 42.10% gain on 2005. It rose from 3973.04 points at the start of the year to 5645.65 points at the end, based on the NSE 20-share index. Compared to the year's growth figures of a number of the more developed stock markets around the world, shown below, this was remarkable.

Even more noteworthy, however, was the growth in market capitalization in 2006. In local currency terms, this rose by 75.97%, from Kshs 448.1 billion to Kshs 788.4 billion. In US$ terms, the growth was even higher, from $6.2 billion to %11.4 billion -- meaning an 84.35% appreciation, or twice the rise in the NSE index! For the first time in its history, the NSE passed the US$ 10 billion threshhold in market capitalization in '06.

This performance in turn indicates that, with the steady appreciation of the Shilling against the Dollar in '06, there was in effect an 8.38 percentage-point premium for investors coming into the Kenyan market with Dollars. This should be icing on the cake for all non-resident investors, and in particular Overseas Kenyans. It should be more that sufficient incentive for those in the Diaspora to invest back home. For Kenyan investors at home, the message is clear: investing in the country is the real deal!

Clearly, however, there is a significant disconnect between the gains recorded in the NSE index (42.10%) and in NSE's market capitalization (75.97% in local currency and 84.35% in Dollar terms).

One inference from this is that an investment allocation strategy which had sought to track/mirror the NSE 20-share index would have achieved returns far below what was in fact possible. And this reinforces recent calls to overhaul the index, whose basis for calculation is the geometric mean, and to include more of the nearly 50 equities currently quoted on the exchange.

How Other Bourses/Indexes Performed in 2006:

1. India's Sensex Index: 46.0%
2. Hong Kong's Hang Seng Index: 34.20%
3. Australia's S&P/ASX 200 Index: 19.0%
4. Broad European Index of Leading Stocks: 18.0%
5. Paris Stock Exchange: 16.49%
6. Zurich Stock Exchnage: 16.0%
7. Milan Stock Exchange: 15.28%
8. London Stock Exchange: 10.50%
9. Nikkei 225 Index: 7.0%

Data Sources: nse.co.ke, news.bbc.co.uk, cnbc