Kenya's capital markets registered negative returns in the second quarter (Q2) of 2023 with the Morgan Stanley Capital International (SCI) Index declining by 27.7 percent to 129.53 on a year-to-date basis in U.S. dollar terms, the Capital Markets Authority (CMA) said in a report on Friday.

The institution attributed the decline to prevailing tough local and global economic conditions, adding that they continue to depress the equity market performance.

During the quarter, key indices of the Nairobi Securities Exchange (NSE) namely the NSE 20, NSE 25 and Nairobi All Share Index (NASI) declined to 1,574.92, 2,728.89, and 107.00 basis points respectively, reflecting heightened volatility at the market, said CMA in its analysis report for the quarter.

But despite the decline, foreign investors' participation slightly increased to 44.9 percent compared to 41.2 percent in the first quarter on the back of booking profits during the dividend season.

Luke Ombara, CMA's director of policy and market development, said that June marked the first instance since February 2022 where the market observed some capital inflow of 113 million shillings (about 794,000 dollars) from foreign investors, as outflows declined to 10.4 million dollars.

The inflow indicates that foreign investors' confidence in the market is growing despite heightened capital outflow over the past year, he added.

Kenya's economy grew by 4.8 percent in 2022 affected by drought and global factors like rising inflation and the Russia-Ukraine conflict. This was a decline from 5 percent the previous year.

The World Bank projects that the country's economy would grow by 5.5 percent in 2023.