The Nairobi Securities Exchange PLC (NSE) has been upgraded from ‘restricted’ to ‘pass’ classification by the FTSE Russell Index Governance Board following improved access to dollars in the forex market.

FTSE Russell had placed the Kenyan market under watch in 2022 following complaints by foreign investors of difficulties in accessing dollars from the local forex market to repatriate dividends and proceeds of share sales, undermining investor confidence and liquidity.

The London-based index provider conducted several engagement meetings with Kenya's Capital Market Authority (CMA)to discuss the issue in the 12 months to September 2023, Business Daily writes.

The reclassification follows the FTSE equity country classification interim review, wherein Kenya's equity market was assessed against a set of technical criteria. Notably, it recognised the clearing of previously reported delays in institutional investors’ ability to repatriate capital.

“We are delighted by the reclassification, which is a testament to the continued improvement in Kenya's equity market and a demonstration of the confidence international institutional investors are placing in our market,” said David Wainaina, acting CEO of the NSE.

In a statement, the exchange said the reclassification from a restricted market will boost inflows from foreign investors, who typically account for close to 60% of daily turnover at the NSE.

FTSE Russell's market cap-weighted equity indexes, including the flagship FTSE Global Equity Index Series (FTSE GEIS), FTSE UK Index Series, and the Russell US Indexes, are widely used by investors worldwide for asset allocation decisions, portfolio construction, and risk and performance analysis.

Similar index change restrictions have been in place since 2022 by the Morgan Stanley Capital International (MSCI), which includes Kenyan blue chips on its frontier markets indices, Business Daily notes.

When announcing the “special treatment” of the Kenyan index in August 2022, the MSCI said that “such changes include migrations between size segments, additions of newly eligible securities, including sizeable IPOs”. The MSCI is yet to lift its restrictions on the Kenyan index.

NSE data show that foreign investors made net sales of KES2.3bn in the first quarter of 2024, with the highest selloff coming in March at KES1.2bn.

The rally of the shilling against major world currencies has improved the performance of the bourse in US dollar terms, however foreign investors have continued their flight from the market, Business Daily writes.