UNDERSTANDING GEOPOLITICAL RISK AND ITS IMPACT ON YOUR INVESTMENTS

Introduction

The month of March 2026 reminded us that investment markets do not move in isolation. Events thousands of kilometres away—in this case, an escalation of the conflict in the Middle East—can have direct and immediate effects on the value of your portfolio.

We believe that an informed investor is a confident investor. Let us walk you through the recent events and what they mean for your financial goals.

Part 1: What Is Geopolitical Risk?

Geopolitical risk refers to the possibility that political events, conflicts, or tensions between nations—or within a region—will disrupt normal economic and financial market activity.

Examples include:

• Wars and military conflicts

• Trade sanctions and embargoes

• Terrorist attacks

• Political instability or coups

• Disruptions to critical infrastructure (e.g., oil shipping lanes)

Why Does Geopolitical Risk Matter to Investors?

When geopolitical tensions rise, investors become uncertain about the future. This uncertainty triggers a “flight to safety” – investors sell assets perceived as risky (like stocks) and buy assets perceived as safe (like government bonds, cash, or gold). This shift in sentiment can cause sharp market movements, even when the underlying companies are fundamentally sound.

Part 2: The March 2026 Geopolitical Shock – What Happened?

On 28 February 2026, a major escalation occurred in the US‑Israel‑Iran conflict. Iran closed the Strait of Hormuz – a narrow passage through which approximately 20% of the world’s oil supply passes.

Immediate Consequences:

Consequence	Details
Oil price spike	Brent crude oil rose 47% above pre‑war levels, trading above $106 per barrel.
Global supply chain disruption	Shipping delays and higher freight costs affected imports and exports worldwide.
Investor risk aversion	Global investors moved capital from emerging markets (including Kenya) to safe‑haven assets (US Treasuries, gold, Swiss franc).
Foreign outflows from Kenya	Foreign investors sold KSh 8.61 billion worth of NSE shares in March, with net outflows of KSh 4.28 billion.

Data table provided below.

Table 1: Monthly Oil Price & NSE Performance

Month	Brent Crude (USD/barrel)	NASI Index (close)	NSE 10 Index (close)	Foreign Net Flows (KSh bn)
Jan 2026	72.50	215.30	185.20	–0.50
Feb 2026	74.20	218.40	188.10	–0.80
Mar 2026	106.30	194.82	168.40	–4.28

Part 3: How the Kenyan Market Reacted

Equity Market

March 2026 was the worst month for the Nairobi Securities Exchange (NSE) in nearly a year. Every major index ended the month in deep red:

Index	March Change	Close (31 Mar)
NASI (All Share)	–9.84%	194.82
NSE 10 (Large caps)	–10.49%	168.40
NSE 20 (Blue chips)	–8.50%	1,845.30
Banking Index	–8.89%	112.50

Best chart type for this table: Column chart showing percentage declines.

Why Did Even Profitable Companies Fall?

The sell‑off was indiscriminate. Large‑cap stocks with strong earnings were hit hard:

Stock	March Price Decline	Comment
Safaricom	–14.06%	Despite dominant market position
KCB Group	–15.58%	Despite strong dividend growth
Equity Group	–10.68%	Despite robust earnings
ABSA Kenya	–11.34%	N/A
Standard Chartered	–8.83%	N/A

Key takeaway: The declines were driven by investor sentiment and forced selling, not by deteriorating fundamentals of these companies.

Bond and Money Markets

While equities fell sharply, the bond and money market sleeves provided relative stability.

Indicator	Feb 2026	Mar 2026	Change
91‑day T‑bill yield	7.54%	7.43%	–11 bps
364‑day T‑bill yield	8.36%	8.30%	–6 bps
Interbank rate (avg)	8.67%	8.70%	+3 bps
Bond turnover (KSh bn)	382.0	329.5	–13.7%