Over the past few years, active retail investor participation at the Nairobi Securities Exchange (NSE) has remained notably low, averaging fewer than 10,000 per month.
This is strikingly low when compared to Kenya’s tens of millions of mobile phone users, a demographic that clearly has the capacity to invest in the market.
Historically, much of the attention in Kenya’s capital markets has shifted toward institutional investors, who were viewed as the primary drivers of market activity and transaction volumes, and, consequently, higher fees for intermediaries.
While this approach made sense for a time, global investment patterns now show that overreliance on institutional investors creates market vulnerability, particularly in frontier markets like Kenya.
Through extensive engagements with London-based institutional investment firms, it has become evident that liquidity, not economic fundamentals or valuations, remains the biggest constraint limiting foreign investor participation in Kenyan equities.
Many global funds have introduced strict liquidity thresholds for their portfolios. One such fund indicated it only trades in securities with a daily turnover between $300,000 and $500,000, with limited exceptions.
As a result, it exited most of its Kenyan holdings that failed to meet this benchmark. Another fund, once heavily invested in frontier markets, was forced to merge into an emerging market vehicle, reducing its frontier exposure from $900 million to just $150 million, primarily due to liquidity constraints.
These examples highlight a simple truth: foreign institutional investors are not avoiding Kenya due to weak fundamentals or poor valuations, they are staying away because of liquidity challenges. For institutional investors, the ability to quickly enter and exit positions is critical, especially when managing client funds that may need to be recalled at short notice.
So, how then does activating domestic retail investors help unlock liquidity? The answer is straightforward. Institutional investors, both domestic and foreign, tend to buy and hold, meaning their trading frequency is low.
However, to sustain a vibrant and liquid market, consistent trading activity is essential. Retail investors, who generally trade more frequently and speculate based on market movements, provide that constant flow of transactions that keeps the market active.
This steady participation by retail investors unlocks market liquidity, improves daily turnover, and makes the market more attractive to institutional investors, who gain confidence from being able to enter and exit positions efficiently.
Globally, markets that have achieved significant liquidity, such as the US, have done so through strong retail investor participation. According to the US Federal Reserve, approximately 61 percent of American households directly or indirectly own stocks, either through brokerage accounts, mutual funds, or retirement plans. This broad base of participation has created one of the most liquid markets in the world.
Limited market participation also has a direct impact on the valuation of listed companies. In a thinly traded market, price discovery becomes inefficient, often leading to undervaluation of fundamentally strong companies.
Increasing retail investor participation is therefore critical to ensuring fair and transparent price discovery, a persistent challenge that continues to affect issuers at the NSE.
Many listed companies currently trade at significant discounts to their intrinsic value because illiquidity prevents accurate reflection of market demand.
A deeper, more active retail investor base would not only enhance valuation accuracy but also restore investor confidence in the market’s ability to reflect true corporate performance.
The NSE 2025–2029 Strategy places strong emphasis on revitalising retail investor participation, with a bold target to grow the number of active retail investors to 9 million.
This will be achieved through initiatives focused on enhancing market access, investor education, and continuous engagement. Achieving this target will play a critical role in making Kenya’s capital markets more appealing to both local and international investors by unlocking liquidity and supporting efficient price discovery.
