Volatile political situation resulted into outflow of Ksh16.639 billion
Volatile political situation in the second quarter of 2024 made foreign investors to exit the Kenyan market, thereby resulting into an outflow of investment worth Ksh16.639 billion at the Nairobi Security Exchange (NSE).
The outflow was a significant negative net equity portfolio compared to an increment from Ksh628 million in the previous quarter.
According to Capital Market Authority Soundness Report, although the outflow existed, four major indices the NSE 20, NSE 25, NASI, NSE 10 closed the year with an increment of 13.23, 17.37, 15.32, and 15.79 per cent respectively.
Analysts explain that large or sudden capital outflows can cause disruptive currency movements, which can negatively impact interest rates, credit, and output.
CMA Director, Policy, and Market Development, Luke Ombara, reveals that a review of the period indicates that there is a risk of growing adoption of artificial intelligence (AI).
“The growing adoption of AI has fundamentally reshaped the capital markets industry and it possesses further potential to deepen product uptake and enhance efficiency within the capital markets,” Ombara disclosed.
He said in the decision-making phase, AI can help firms to predict market trends and asset prices by analyzing past data, can also examine news, social media, and financial reports to understand how people feel about certain investments, which can help forecast how the market might react, it also has a negative side effect.
“The technologies can also assist firms to assess the risks involved in various investments, considering factors like market changes or company performance. Additionally, AI can be used to optimize investment portfolios, ensuring the right mix of assets is chosen to maximize returns while minimizing risks,” Ombara explains.
He says when it comes to executing trades, AI and ML algorithms can automatically make trades at the best possible times, based on data patterns, which reduces the need for human intervention – saving time and lowering the chances of errors.
The AI technologies can also predict how easily assets can be bought or sold in the market, helping traders avoid paying extra costs when making large trades.
However, the danger with all those positive things from AI is that in the capital markets decision-making process, some ethical concerns related to privacy, bias and fairness, accountability, transparency and explainability.
“AI models have the potential to develop and incorporate certain social biases and potentially propose unwanted outcomes if the source data cleaning and analysis were not carefully considered,” he notes.
He says the robo-advisory applications could potentially pose ethical harm by perpetuating biases if unchecked, and use confidential financial information without being data compliant.
Ombara says since there is lack of transparency on how AI models make decisions given the opacity of the rules and parameters of the algorithm that is at the core of robo-advisory solutions, there is a need to address may hinder the uptake of robo-advisory solutions.