The war began on February 28, and the selling followed within days.
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.
Notable Quotes
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
The Hearth Conversation Another angle on the story
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.