Dear Readers,
As we look ahead to the opportunities of 2026, it is vital to reflect on the significant shifts that defined the last year. Our “Outlook 2025: Ride the Bull and Chart the Bonanza” accurately captured the market sentiment, noting the trend of capital reallocation from traditional fixed-income securities toward the higher returns offered by equities. Indeed, 2025 proved to be a period where the fundamental strength across key sectors, coupled with improved market visibility through international indices, fuelled a sustained bull run.
This past year, we witnessed the truth in John F. Kennedy’s famous maxim: “A rising tide lifts all the boats.” The momentum of the banking sector and the upward reversal in undervalued stocks not only delivered strong returns but also created a more favourable environment for the entire market, particularly the small-cap segment.
The 2026 market outlook is largely bullish for equities, anticipating a sustained rally fuelled by a favourable macro environment and new listings, while fixed-income markets are expected to normalize with slower yield compression and returns shifting to a focus on carry.
We look forward to guiding you through the emerging market landscape and helping you position your portfolio for success in 2026.
Executive Summary
Kenya enters 2026 on a firmer macroeconomic footing, with inflation anchored and external foreign exchange buffers rebuilt. As such, the operating environment appears increasingly supportive of private capital deployment. Growth is expected to be steady rather than exuberant, with execution risks shifting from macro instability toward fiscal management and policy transmission. While domestic interest costs have eased alongside lower yields, structural challenges persist, such as revenue underperformance, rising recurrent expenditure, and the weight of debt servicing costs & increased reliance on domestic borrowing. Consequently, a heavy reliance on local markets risks “crowding out” the very private sector the CBR cuts intend to support. We expect foreign direct investment to remain health y under these conditions.
Growth is expected to Remain above 5%.
Overall, CBK estimates, which we think are relatively accurate, project that Kenya’s economy will grow by 5.2% in 2025 and 5.5% in 2026, driven by supply-side improvements rather than cyclical stimulus. Growth will likely be underpinned by resilient agriculture, continued strength in services, and a recovery in industry and construction supported by lower production costs, cleared government arrears, resumed infrastructure activity, and improving credit conditions. The growth mix is becoming more balanced, with the industrial sector gaining importance. Monetary conditions remain supportive, though the easing cycle is maturing. With Central Bank Rate contained below the CBK target midpoint, the policy rate is expected to drift toward ~8.0% by end-2026, with future cuts smaller and data-dependent. The focus shifts to policy transmission, as lower deposit rates and stabilizing asset quality support a gradual recovery in private-sector credit.
Bullish Outlook on Equities, With New Listings Expected.
Looking into 2026, we are of the view that investors will maintain a bullish stance and show greater appetite for risk despite the robust 2025 performance that the market is building on. Further, expectations of new listings add to the case for a rally on the back of robust and improving macroeconomic conditions.
Key themes for 2026 include;
- The mounting global tensions and polarization are a prevailing risk that cannot be ignored
- The Macro environment is a tailwind
- Emerging Opportunities with new listings
Fixed Income market to normalize: Yield compression to continue at a lower pace.
After a strong rally in 2024–2025, we expect fixed-income markets are expected to normalize in 2026. Yield compression should continue at a slower pace, with returns increasingly driven by carry rather than capital gains. Additionally, issuances are likely be skewed toward long-dated government bonds, while corporate issuance may expand selectively, particularly in green and infrastructure-linked instruments.
Fiscal spending to widen ahead of 2027 Elections.
We expect fiscal spending to remain elevated ahead of the 2027 elections, with the government increasing borrowing, privatizations, and other financing mechanisms to attract private-sector participation in delivering infrastructure and creating jobs. Tax administration reforms will continue to collect additional revenue with the proposed sovereign and infrastructure funds being actualized. Key risks to the downside include adverse weather shocks, fiscal slippage, heightened geopolitical tensions, and rising political activity ahead of the 2027 elections.
Inflation is expected to remain within the 4.0%–5.0% range.
This will likely be supported by stable energy prices, easing food inflation, and exchange-rate stability. The shilling enters 2026 from a position of relative strength, anchored by strong foreign exchange reserves, record diaspora remittances, active external debt management, and recovering exports and tourism.
New IMF program?
With Kenya’s previous four-year USD 3.6bn IMF programme having expired in April 2025, the government has since signalled a reset in engagement strategy as it seeks a new programme. Treasury officials have emphasized the need for a new IMF programme aligned with policy flexibility and tax predictability, citing limited political and economic space for new tax measures (which we believe is mainly due to the social upheaval suggested measures caused over the last 2 years). A renewed IMF programme—despite being debt-linked—would provide an important credibility anchor and financing buffer.
