Equities Market
Global equities extended their upward trajectory in Q3 2026, gaining approximately 1.6% and lifting year-to-date returns to 13.0%, as measured by the MSCI All Country World Index, despite the rate hikes triggered by a continued surge in fuel inflation. Emerging markets declined by 0.4% during the quarter but remained up 23.3% year-to-date.
Local stocks maintained a further 9.6% gain in the third quarter, supported by better half-year earnings and improved interim dividend payouts. This saw all the price-tracking indicators remain positive, led by NSE 20 at 15.0%, NSE 10 at 13.5%, the Banking index at 13.2%, and NSE 25 at 12.4%.
Year to date, Kenyan stocks were up 31.1% on average, with banks recording the largest gain of 41.3% in the nine months of 2026. Year on year, equity prices rose by 39.0% on average, pushing market capitalization up 48.0%, partly supported by the listings of Triffic Green I-REIT, Africa Logistics (ALP I-REIT), Family Bank, and KPC, all of which occurred earlier in the year.
Sector-wise, the Banking (+13.2 % on average), Manufacturing (+44.4% up), and Insurance (+22.4% up) sectors rallied, supported by their larger market-capitalization weightings. This was despite the Automobiles (Car General) and Investment Services (Nairobi Securities Exchange Plc) sectors, single-counter sectors, posting the highest gains of 149.1% and 54.8%, respectively.
On a market capitalization-weighted basis, the Banking sector remained dominant with a 43.3% share, followed by Telecommunication (Safaricom) at 34.9%, Manufacturing at 7.5%, Energy at 7.2%, and Insurance at 3.1% as at Q3 2026.
The quarter’s value traded rose 22.1% to KES 72.72Bn from KES 59.54Bn in Q2 2026, driven by a 10.6% increase in traded volumes, stronger activity in high-value counters, and broad-based market price appreciation.
On a year-on-year basis, market turnover rose by 57.3% to KES 72.72Bn from KES 46.22Bn, driven by sustained trading activity and improved corporate earnings, which have generally supported higher market valuations and activities.
Investor focus remained in the banking and telecommunications sectors, which exchanged KES 42.06Bn, or 57.8% of the market turnover, and KES 16.18Bn, or 28.5% of the market value. Cumulatively, the two sectors accounted for 80.1%, or KES 58.25Bn, of the total KES 72.72Bn traded. Activity-wise, the two sectors exchanged 1.13Bn shares, accounting for 60.6% of all trading volume.
The manufacturing sector recorded the most improvement, trading KES 6.72Bn in Q3-2026, a 75.8% jump from KES 3.83Bn in Q2-2026, to emerge as the third-largest mover. The energy sector followed in fourth position after its value traded down 14.8% to KES 3.88Bn in Q3 2026 from KES 4.55Bn traded in Q2.
The quarter’s foreign activity rose marginally from 32.0% in Q2 2026 to 33.8% in Q3 2026, with a spike in net foreign outflows of KES 5.67Bn from that of KES 1.20Bn traded in Q2 2026.
The telecommunications, manufacturing, and energy sectors recorded the largest net foreign outflows of KES 3,644.24Mn, KES 2,557.27Mn, and KES 795.53Mn, respectively, while banking was the only sector to post significant net foreign inflows of KES 1,544.18Mn, see table below.
Company-wise, Absa and Equity Group were the quarter’s leading net foreign inflow counters at KES 4,216.87Mn and KES 558.00Mn, respectively, while Safaricom, EABL and KCB Group recorded the largest net foreign outflows of KES 3,644.23Mn, KES 2,217.54Mn and KES 2,024.46Mn, respectively.
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Primary Bonds Market Performance
Government bond re-openings sustained strong primary market activity, with bids of KES 840.40Bn (215.5% subscription) against a KES 390.00Bn target for Q3-2026. The Government accepted KES 543.83Bn, achieving a 139.4% performance rate.
August posted the strongest performance, driven by infrastructure bond re-openings ahead of a KES 172.98Bn maturity and coupon payment. The Government accepted KES 312.03Bn from KES 460.40Bn in bids, delivering a 208.0% performance rate.
The strong demand was supported by strong reinvestment of the KES 288.98Bn payouts in Q3-2026, of which KES 78.01Bn were maturities, and KES 210,96 were coupon payments.
Looking ahead, bond payouts of KES 282.58Bn are expected in Q4-2026, comprising KES 57.09Bn in maturities for IFB1/2014/012 and FXD1/2021/005, and KES 225.49Bn in coupon payments.
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Yield Curve
Reopenings of existing bonds and the Central Bank’s rate stabilization kept yields relatively low, especially post-primary auctions, where investors from the primary auctions focused on cashing in capital gains at lower yields.
The short end below 7-year largely shifted upward due to the reopening of October’s first auction for FXD3/2019/015 (7.8-year) and the presence of some short-term switch auctions.
The short-end yield, 2-yr to 6-yr paper, dropped by 4.71 bps to 80.55 bps during the quarter, suggesting a surge in demand for shorter-dated paper.
With the Government keen to maintain lower rates in 2026, we expect mixed market movements to persist, with re-openings lifting yields before easing after primary market settlements.
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Economic Update & Outlook
Global economic growth is projected to moderate from 3.5% in 2025 to 3.1% in 2026, then recover to 3.4% in 2027, amid elevated energy and food prices, persistent geopolitical tensions, and ongoing trade uncertainties.
Kenya’s economic outlook remains positive, supported by stronger growth prospects, resilient performance in the services and industrial sectors, expanding private-sector credit, and a relatively stable exchange rate.
Kenya’s growth forecast for 2026 has been revised upward to 5.0% from 4.9%, compared to an estimated 4.6% growth in 2025, largely reflecting stronger activity in the industrial and services sectors. Growth is expected to remain robust at 5.3% in 2027.
However, the outlook remains exposed to downside risks, including prolonged geopolitical tensions, heightened trade policy uncertainty, and climate-related shocks such as droughts and floods that could threaten food security.
Inflationary pressures have continued to build during the year. Quarterly inflation rose from 6.2% in Q2 2026 to 6.6% in Q3 2026, mainly driven by higher food and energy prices linked to escalating geopolitical tensions.
On a monthly basis, inflation increased further to 6.8% in September 2026 from 6.6% in August, largely reflecting higher fuel prices that continued to raise transportation and production costs across the economy.
Persistently rising inflation could exert upward pressure on interest rates, increasing the cost of financing for businesses and eroding consumers’ purchasing power if not contained.
We expect the Central Bank to increase the policy rate by 25 basis points from 8.75% to 9.00% at the next Monetary Policy Committee meeting scheduled for 7th October 2026, as it seeks to anchor inflation expectations and support price stability.
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Interbank
The interbank rate remained closely aligned with the Central Bank Rate (CBR) of 8.75% throughout Q3 2026, averaging and closing the quarter at the same level, reflecting relatively stable liquidity conditions.
Liquidity demand advanced to KES 12.40Bn at the end of Q3 2026 from KES 10.45Bn in Q2 2026, while average liquidity demand edged up slightly to KES 11.76Bn from KES 11.69Bn, suggesting only mild liquidity pressures and generally favorable conditions within the market.
Bank excess reserves slightly declined from an average of KES 23.8Bn in Q2 2026 to KES 23.5Bn in Q3 2026.
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Treasury Bills
Treasury bill auctions in Q3 2026 recorded strong investor demand, attracting subscriptions of KES 590.14Bn against a target of KES 356.00Bn, translating to a subscription rate of 165.8%. The government accepted KES 490.22Bn, a performance rate of 137.7% of the target, supported by robust reinvestment from KES 423.53Bn in maturities in the Quarter.
Looking ahead, Treasury bill auctions are expected to remain well subscribed, underpinned by reinvestment flows from KES 584.42Bn in maturities scheduled during the quarter.
Meanwhile, Treasury bill yields edged higher in the 182-day and 364-day papers, rising to 8.8949% and 9.0431%, respectively. The upward movement reflects increasing rate pressures amid heightened geopolitical uncertainty and its effect on investor sentiment.
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Currency
The Kenyan shilling remained relatively stable, shedding 0.2% quarter-on-quarter, while stabilizing at an average of KES 129.43 per US dollar in Q3-2026, compared with KES 129.42 per US dollar in Q2-2026.
Year-on-year and year-to-date, the shilling lost 0.4% and 0.6%, respectively. The quarter-on-quarter stability was largely driven by surges in diaspora remittances, substantial inflows of multilateral funding, strong forex reserves, and a cautious monetary policy approach.
Foreign exchange reserves increased by 14.2% quarter-on-quarter to USD 15.04Bn in September 2026 from USD 13.17Bn in June 2026. The growth was largely supported by a 16.8% rise in diaspora remittances, which climbed to USD 438.55Mn in September 2026 from USD 375.60Mn in June 2026, alongside a USD 750Mn disbursement from the World Bank.
