Market Reactions as Geopolitics Turn

Editor’s Note

This was a week defined by the collision of geopolitical hope and geopolitical reality. Markets opened with optimism on reports of diplomatic engagement between the United States and Iran, only to close materially lower as those signals unravelled. By the end of the week, the question had shifted from how soon the conflict would conclude to how much damage its persistence would inflict on the macro outlook.

For global markets, the outcome was renewed inflation risk, fading rate-cut expectations, and a broad downward repricing of equities. For Kenya, the selling was sharper, amplified by the mechanics of foreign ownership and concentrated index composition. The result was a week in which the same geopolitical shock produced two versions of the same directional outcome, but through different channels with different implications for what comes next.

Global Markets ended the week lower, driven by a volatile sequence of geopolitical headlines, a notable court ruling against major technology platforms, and concerns about structural demand in the memory chip sector.

The week began with a relief rally after President Trump suggested the U.S. and Iran had engaged in productive talks, sending oil briefly below $100 per barrel and lifting equities roughly 1.15% on Monday. That optimism was short-lived as by Tuesday, Iranian officials denied any direct talks had taken place, and the modest 0.37% decline reflected an unwinding of the prior session’s gains rather than any fresh deterioration.

Wednesday brought temporary relief. Reports that the U.S. had delivered a formal ceasefire proposal to Iran pushed markets up as much as 1.2% on the day, although gains faded to 0.54% by the close as investors questioned whether the proposal would be accepted. That scepticism was validated on Thursday when Iran officially rejected the ceasefire offer. Oil rose notably, and equities fell 1.74% as the selloff broadened. Meta and Alphabet were also weighed down by a court ruling related to social media addiction, and memory chip makers declined on reports that Google’s new TurboQuant algorithm could structurally reduce AI-related demand for memory capacity.

Friday compounded the damage as reports surfaced that the Pentagon was considering deploying 10,000 additional troops to the region, which elevated the risk-off narrative. The U.S. extended a deadline for striking Iranian energy facilities, but Iran denied requesting the extension, revealing what appeared to be no back-channel communication. The S&P fell 1.67% on the day.

Overall, the week showed how quick markets reprice around the Middle East conflict. Any indication of diplomatic progress produces an immediate relief bid, while any deterioration results in a sharp selloff. This reflexivity highlights the degree to which the conflict has become the dominant variable in short-term equity pricing, overriding earnings fundamentals. The persistence of elevated oil prices threatens to reignite inflation when markets had anticipated easing. That combination has weakened the global rotation thesis that favoured international (non U.S.) equities earlier in the year, as many economies are now absorbing the conflict’s impact through lower economic activity and increased inflation. The risk of further equity downside remains, reinforcing our view that 2026 remains a stock picker’s market rather than one suited to broad exposure.

_{^{Our recommendation is to stay agile and opportunistic as broad market direction is becoming increasingly driven by headline risk rather than fundamentals.}}

Kenyan equities moved in the same direction as global markets, but with a notably sharper decline that showcased the vulnerabilities of frontier market exchanges. The NSE All Share Index ended the week at 195.48, down 6.7%. The NSE 20 fell 6.6% to 3,418.58, and the NSE 25, the most concentrated of the three benchmarks, dropped 7.8% to close at 5,408.24.

The scale of the decline suggests that the selling was primarily driven by external flows and index mechanics rather than by local fundamentals deteriorating.

Much of the selling pressure can be attributed to foreign investors reducing exposure. Kenya features in several broader frontier market indices, including the MSCI Frontier Markets Index, and when International risk appetite diminishes, the resulting outflows hit frontier markets such as Kenya immensely. The MSCI Kenya Index fell approximately 6.35% in dollar terms for the week, confirming that internationally held names bore the brunt of the selling.

The divergence between the NSE All Share Index and the NSE 25 further showcases the role of index composition. The NSE 25 is a market-capitalisation weighted index dominated by the large domestic banks and financials, and a broader set of market-sensitive names. Because only six Kenyan stocks appear in the MSCI Kenya Index, selling concentrated in those names feeds into the local benchmarks with outsized force. The remaining constituents of the NSE 25 then amplify the move as domestic participants respond to a deteriorating sentiment. This highlights a structural feature of Kenya’s equity market which is that a handful of internationally indexed names (Safaricom, Equity, KCB and others) can dictate the direction of local indices, meaning any broad-based international selling results in a disproportionate local impact.

The implication is that last week’s decline, while substantial, was more of a function of global investors repricing risk and liquidating their ‘riskier’ investments such as Frontier Market indexes, and less of a reflection of worsening domestic conditions.

_{^{With foreign selling in internationally indexed Kenyan equities driving a disproportionate share of the market’s decline, we recommend watching the largest names which are in international indices, such as Safaricom,EABL, Equity, and KCB, which remain vulnerable should international risk appetite decreases, but could also see the strongest rebound if external flows return.}}

_{Last Week’s Review}

Last week, our global trade centred on the fertiliser shock and its implications for non-Gulf nitrogen producers. We highlighted CF Industries (NYSE:CF) as the clearest expression of demand redirection away from Middle Eastern supply chains. The stock rose 17.0% over the week, validating the thesis that constrained Gulf supply would benefit North American nitrogen producers with secure feedstock and reliable logistics.

On the Kenyan side, we recommended reducing equity exposure in favour of short term government securities. The equity leg of that trade performed as forecasted, with the NASI falling 6.7% and the NSE 25 declining 7.8%, confirming that de-risking was the correct move. On the T-Bill side, things were more nuanced with the 91-day yield falling 14.2 basis points to 7.426% from 7.568% on March 19, and the March 26 auction being undersubscribed. However, KESONIA (the Kenyan overnight inter bank lending rate) went higher from 8.68% to 8.73%, suggesting that interbank liquidity conditions are beginning to tighten, a development worth monitoring as a potential leading indicator for broader rate dynamics.

_{This Week’s Trade Ideas}

_{- Global Trade}

_{Meta Platforms Inc (NASDAQ:META)}
This week’s global trade is a position call. The thesis is that in a more uncertain market driven by geopolitics rather than earnings, investors rotate toward safer, high-quality names which tends to favour large-cap technology stocks that have been oversold relative to their fundamentals.

Meta Platforms stands out as a clear candidate. The stock declined 13.16% last week and is down 34.0% from its 52-week high, driven by the broader de-risking tone and the court ruling on social media addiction rather than by any material change in the company’s earnings path or competitive position. At a trailing P/E of 21.9 and a forward P/E of 17.9, the stock now trades at a meaningful discount to its five year average P/E of 25.8. That valuation discount combined with the likelihood of mean reversion once geopolitical sentiment stabilises, makes the risk-reward attractive on a one-week tactical horizon.

In our view, the magnitude of the selloff in the stock has been disproportionate relative to the fundamental impact, creating a short-term entry point for investors willing to take advantage of the opportunity.

_{- Kenya Trade}

_{Maintain: Reduce Equities, Favour T-Bills}
We retain last week’s recommendation to reduce equity exposure and increase allocation to short-term government securities. Our rationale has strengthened, with KESONIA moving higher and public commentary from national leaders signalling concerning about fuel hoarding, the probability of renewed inflationary pressure has increased. High food and energy costs will weigh on consumption and corporate earnings, while reducing the likelihood of further Central Bank of Kenya rate cuts and potentially reopening the case for rate hikes.

Our assessment is that the conflict is unlikely to persist at current intensity. The trade is therefore defensive, where investors reduce equity risk during this period of increased uncertainty, capture attractive fixed-income yields, and maintain the flexibility to re-enter equities once conditions stabilise.

Our focus this week remains on the Middle East conflict. As the past week showed, markets have become highly sensitive to any shift in the diplomatic trajectory, and this sensitivity is unlikely to fade until a credible de-escalation path arises. Any sign of a resolution or meaningful diplomatic progress would be positive for global equity markets.

For Kenya, however, the effect would be different. A de-escalation would likely reduce the magnitude of further selling, but the directional path for Kenyan equities is likely to remain under pressure in the near term as foreign outflows, index mechanics, and the lagging nature of frontier market repricing continue to exert influence.

In the absence of a resolution, the risk is that elevated oil prices persist long enough to feed into inflation, constrain the policy path for central banks globally and domestically. That is the scenario in which the current defensive posture would prove most valuable.

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