The war began on February 28, and the selling followed within days.
Kenya's Nairobi Securities Exchange entered 2026 carrying the momentum of a continent-leading year, only to find the first quarter reshaped by the tremors of a distant war. When Iran's conflict began on February 28, the familiar calculus of emerging-market investing shifted — cash became comfort, and equities bore the cost. The NSE's dollarised return of 0.9 percent for the quarter is not a story of failure so much as a reminder that in interconnected markets, geopolitical shocks respect no border, and even a stable currency cannot fully shelter a market from the weight of global fear.
- The Iran war's outbreak on February 28 triggered an immediate flight to cash among investors holding NSE equities, concentrating roughly half of the quarter's foreign net-selling into just five weeks.
- Foreign institutional investors net-sold Sh8.78 billion in NSE shares across Q1, with blue-chip stocks — the most liquid and most exposed — absorbing the heaviest exits.
- The selloff erased more than Sh280 billion in market capitalization between late February and the end of March, a swift and measurable wound to a market that had ranked second on the continent just months earlier.
- Kenya's peers — Nigeria, South Africa, Zimbabwe, and others — posted dollarised gains of between 9.6 and 44 percent over the same period, leaving the NSE's 0.9 percent return stranded near the bottom of the African leaderboard.
- The shilling's relative stability against the dollar spared Kenya the currency-driven losses that devastated Egypt and Morocco, but that buffer proved insufficient to attract the foreign capital needed to match the continent's leaders.
- With geopolitical uncertainty around the Iran conflict unresolved, institutional money is expected to remain cautious, making a swift recovery in share prices — and a return to the NSE's 2025 form — far from guaranteed.
Kenya's stock exchange closed the first quarter of 2026 with a dollarised return of just 0.9 percent — a figure that looked modest in isolation and looked worse still when placed beside what the rest of Africa was delivering. Nigeria, South Africa, Zimbabwe, Tunisia, Senegal, and Côte d'Ivoire all posted gains of between 9.6 and 44 percent over the same three months. The NSE, which had finished 2025 as the continent's second-best performer with a dollarised return of 52.2 percent, found itself near the bottom of the regional table.
The turning point was February 28, the day the Iran war began. Within days, investors holding Kenyan equities began shifting toward cash, seeking shelter from what they feared would follow — higher fuel prices, food inflation, and the broader uncertainty that tends to accompany armed conflict in oil-producing regions. The selling was swift and concentrated. Foreign investors net-sold Sh8.78 billion in NSE shares across the quarter, with roughly Sh4.28 billion of that coming in the five weeks after the war's outbreak. Blue-chip stocks, being the most liquid, bore the heaviest losses. By the end of March, the market had shed more than Sh280 billion in capitalization.
The shilling's steadiness against the dollar provided a genuine, if limited, buffer. Unlike Egypt, which lost 27.4 percent in dollarised terms, or Morocco, which shed 12.3 percent — both punished by currency depreciation that eroded foreign investors' returns on conversion — Kenya's exchange rate neither amplified nor cushioned the damage in any dramatic way. Local and dollarised returns tracked each other closely, which is a form of stability, even if not the kind that attracts capital.
The headline market capitalization figure for the quarter — a 9.7 percent rise to Sh3.23 trillion — carries an important asterisk. Kenya Pipeline Company listed on March 11 with a valuation of Sh166 billion, inflating the aggregate number considerably. Stripping out that single event, the underlying growth in shilling terms was 4.1 percent — positive, but a more honest measure of what the existing market actually delivered. Whether the NSE can recover its continental standing depends largely on how long geopolitical uncertainty keeps institutional money on the sidelines.
By the time the first quarter of 2026 closed, Kenya's stock exchange had managed a dollarised return of just 0.9 percent — a number that looked respectable enough in isolation, but landed near the bottom of the African leaderboard when measured against what peers were doing.
The Nairobi Securities Exchange has 18 companies tracked on Morgan Stanley Capital International's frontier and small-cap indices, a roster that includes Safaricom, Equity Group, KCB Group, EABL, Co-operative Bank, and Standard Chartered Bank Kenya on the flagship frontier index, alongside a longer tail of names — BAT Kenya, KenGen, Centum Investment, Bamburi Cement, and others — on the small-cap side. These listings matter because they are the gateway through which foreign institutional money flows into the Kenyan market, and it is through that same gate that trouble entered in the first quarter.
The MSCI data tells a stark story. Nigeria, South Africa, Zimbabwe, Tunisia, Senegal, and Côte d'Ivoire all posted dollarised returns somewhere between 9.6 and 44 percent over the same three months. Kenya's 0.9 percent sat well below that range. At the other end of the spectrum, Egypt lost 27.4 percent, Morocco shed 12.3 percent, and Mauritius dropped 8.8 percent — all three dragged down primarily by currency depreciation that punished foreign investors converting their returns back into dollars. Kenya avoided that particular trap; the shilling held relatively steady against the dollar, which meant local and dollarised returns tracked each other closely. That stability was a genuine buffer, but it was not enough to lift the NSE into the company of its better-performing neighbors.
The culprit was February 28. That was the day the Iran war began, and within days its tremors were being felt in Nairobi. Investors who had been holding equities began moving toward cash, particularly dollars, as a hedge against what they feared would come next: higher fuel prices, elevated food costs, and the inflationary pressure that tends to follow armed conflict in oil-producing regions. Wesley Manambo, a senior research associate at Standard Investment Bank, put it plainly — while the conflict did not translate directly into the local market, investors visibly shifted toward holding cash while they waited to see how things would unfold.
The selling was measurable and swift. Between the start of the war on February 28 and the end of March, the NSE shed more than 280 billion shillings in market capitalization. Foreign investors net-sold 8.78 billion shillings' worth of NSE shares across the full quarter, and roughly half of that — 4.28 billion shillings — came in the five weeks after the war began. Blue-chip stocks bore the brunt of it, as institutional sellers concentrated their exits in the most liquid names.
In shilling terms, the picture looks considerably better. The NSE's overall market capitalization grew by 9.7 percent in the quarter, reaching 3.23 trillion shillings. But that headline figure carries an asterisk: Kenya Pipeline Company listed on March 11 with a valuation of 166 billion shillings, and that single event inflated the aggregate number substantially. Strip out KPC, and the underlying growth in shilling terms was 4.1 percent — still positive, but a more honest reflection of what the existing market delivered.
The exchange rate dimension is worth dwelling on, because it shapes how foreign investors actually experience Kenyan equities. When the shilling appreciates, an investor exiting the market converts their shilling-denominated gains into more dollars than they put in — a bonus on top of whatever the stock itself returned. When the shilling falls, the reverse happens, and even a strong local return can be eroded or wiped out entirely. Egypt and Morocco are cautionary examples of exactly that dynamic. Kenya's shilling stability in Q1 meant the exchange rate neither helped nor hurt in any dramatic way, which is why the dollarised and shilling returns were so close to each other.
The NSE had finished 2025 ranked second on the continent with a dollarised return of 52.2 percent, a performance that drew attention and capital. The first quarter of 2026 is a reminder of how quickly geopolitical shocks can interrupt momentum. The shilling's steadiness limits the downside for foreign holders, but sustained uncertainty around the Iran conflict could keep institutional money cautious and slow the recovery in share prices that would be needed to close the gap with the continent's leaders.
Citas Notables
Although the conflict did not transmit exactly into the local market, some investors clearly preferred to hold cash while waiting to see how things would unfold.— Wesley Manambo, senior research associate, Standard Investment Bank
La Conversación del Hearth Otra perspectiva de la historia
Why does it matter that the returns are measured in dollars rather than shillings?
Because foreign investors ultimately repatriate their money in dollars. A 10 percent gain in shillings means nothing if the shilling has lost 10 percent against the dollar in the same period — you end up back where you started.
And Kenya avoided that problem this quarter?
Largely, yes. The shilling was stable, so the dollarised return and the shilling return were close to each other. That's actually a meaningful distinction from Egypt and Morocco, which lost heavily in dollar terms because their currencies depreciated.
So Kenya's 0.9 percent isn't as bad as it looks?
It's not as catastrophic as the negative returns in North Africa, but it's still near the bottom of the positive performers. Nigeria and others were doing 10, 20, even 40 percent in the same window. That gap is hard to ignore.
What broke the momentum?
The Iran war, starting February 28. It triggered a classic risk-off move — investors sold equities and moved into dollars as a hedge against inflation from higher oil and food prices.
Was the selloff rational, given that Kenya isn't directly involved in the conflict?
Markets rarely wait for direct exposure. The fear was about the downstream effects — fuel costs, food prices, inflation — and that fear was enough to push institutional money toward the exits.
The KPC listing inflated the headline number. Is that a problem?
It's not a problem exactly, but it's important context. The 9.7 percent shilling return sounds strong until you realize 166 billion shillings of it came from a single new listing. The underlying market grew by 4.1 percent.
What would it take for the NSE to recover its 2025 momentum?
Clarity on the geopolitical situation would help most. If the Iran conflict stabilizes, the risk-off pressure eases and foreign capital tends to return. The shilling's stability is already one thing working in Kenya's favor.