Kenya’s capital markets roared back to life in the third quarter of 2025, defying persistent foreign outflows to post their strongest rally in four years.
Data from the Capital Markets Authority for the three months to September shows that investors’ paper wealth grew by a massive Sh360 billion, with the market capitalisation rising to Sh2.78 trillion from Sh2.42 trillion in the previous quarter.
This represents a near 15 per cent growth, driven by rising share prices across major counters and renewed investor confidence following market reforms.
The Nairobi bourse also defied a sharp flight of foreign investors, orchestrated largely by local political instability, as the youthful population staged protests against President William Ruto’s administration. The Israel-Iran and Russia-Ukraine crises also contributed to the mix, prompting investors to seek a buffer in stable markets.
Foreign outflows rose sharply to Sh3.84 billion from just Sh177 million recorded between April and May 2025.
According to the quarterly statistics, foreign investor participation at the Nairobi Securities Exchange (NSE) dropped sharply in the third quarter of 2025, a shift in market dynamics as local investors stepped in to fill the gap.
“Foreign Investor Participation at the end of the Q3,2025, averaged at 30 per cent, a decrease from Q2 2025 at 46.68 per cent. With the market recording an outflow of Sh3.9 billion compared to an outflow of Sh177 million between April and May 2025,” said CMA in its latest market soundness report.
A step up by domestic investors, however, filled the gap, with overall market turnover rising 60 per cent quarter-on-quarter as locals capitalized on improving returns and new reforms.
However, the impact of the outflows wasn’t felt much as a revitalized market defied the global headwinds and set a fresh milestone across equities, bonds and collective investment schemes.
The equities market was the star performer, posting the strongest rally in four years, with all key indices, the NSE 20, NSE 25, NASI and NSE 10, registered double-digit gains for the second consecutive quarter.
The NSE 20 Index rose by 21.8per cent to 2,972.64 points, while the NASI climbed to 176.7, marking a 35per cent rise compared to the first quarter.
The regulator attributed the performance to the latest reforms, including the introduction of single-share trading, which allows investors to buy as little as one share, down from the previous minimum of 100.
These are expected to deepen retail participation and enhance market vibrancy by allowing investors to buy as little as one share, a move aimed at expanding access and stimulating domestic activity at the bourse.
Despite analysts’ warnings that sustained outflows could pose risks to market stability, CMA holds that innovation will be key in sustaining the markets.
“The quarter underscores Kenya’s continued transition toward an innovative, inclusive, and globally connected capital market,” said CMA’s acting director of policy and market development, Samuel Kamunyu Njoroge.
The regulator is betting on innovations such as democratisation of access to the stock market, through single share acquisitions, which is part of CMA’s long-term goal to grow Kenya’s retail investor base to nine million by 2029.
“The democratisation of investing is finally here. Every Kenyan can now own a share of the nation’s growth,” said CMA Chief Executive Wyckliffe Shamiah, noting that the reform is expected to deepen liquidity and expand the investor base.
The fixed-income segment also posted record gains. The government issued Sh250 billion in Treasury bonds, attracting Sh713.15 billion in bids—an oversubscription of nearly three times.
Secondary bond market turnover hit Sh2 trillion by September, surpassing the 2024 full-year total by over 30per cent. Infrastructure bonds continued to dominate, reflecting investors’ appetite for long-term, stable-yield assets.
Corporate bonds also showed a sharp rebound, with turnover soaring from Sh1.2 million to Sh105 million, an increase of more than 8,000per cent.
Meanwhile, Collective Investment Schemes (CIS) assets grew to Sh596.3 billion by mid-year, up 53per cent in six months, the fastest mid-year expansion on record.
The growth was driven by retail investors seeking professional management and easier access through digital platforms.
The quarter also witnessed landmark listings that highlighted the NSE’s growing sophistication.
The Satrix MSCI World Feeder Fund, the first global equity Exchange Traded Fund (ETF) on the NSE, gave local investors exposure to over 1,500 global companies across 23 developed markets—all tradable in Kenyan shillings.
Additionally, Kenya recorded its first Asset-Backed Security (ABS)—the Sh44.7 billion Linzi FinCo bond—to finance the construction of the Talanta Sports City Stadium.
The 15-year, tax-exempt bond offers a 15.04per cent annual return, marking a breakthrough in mobilizing private capital for national infrastructure.
However, domestic investors filled the gap, with overall market turnover rising 60per cent quarter-on-quarter as locals capitalized on improving returns and new reforms.
Market concentration remained high, with Safaricom and top banks accounting for 66.7per cent of total market capitalization, up from 64.5per cent in Q2, prompting calls from the CMA for diversification and enhanced investor education.
With new asset classes, retail-driven growth, and bold reforms, Nairobi is reasserting itself as a leading financial hub in Africa.
by JACKTONE LAWI
