(Bloomberg) -- Kenyan stocks are being pummeled by a combination of market-unfriendly policies and a strong dollar.

The country’s main equity index has fallen 14 percent this quarter, the most among 95 global indexes tracked by Bloomberg. Stocks in East Africa’s biggest economy are in a bear market after sinking 24 percent from a record high in April.

They now trade at their biggest discount to frontier-market equities in almost a year, based on earnings estimates for the next 12 months. Their forward price-to-earnings ratio has fallen to 9.4 from 13.7 since early April.

While countries from China to South Africa and Argentina have been hit by the longest rout in emerging-market assets in a decade -- sparked by a strengthening greenback and trade tensions between Washington and Beijing -- Kenya’s plight has been worsened by domestic issues. Foreign investors cut their holdings after lawmakers refused to allow the government to remove a cap on interest rates, according to Nairobi-based Cytonn Investments.

“The market expected that the cap would be lifted, so the decision to keep it dampened investor expectations in terms of returns,” said Maurice Oduor, an analyst at Cytonn.

The International Monetary Fund has joined investors in calling for a repeal, saying the ceiling -- set at 400 basis points above the central bank’s key rate -- makes it harder for companies to borrow.

‘Dead Quarter’

“We will have a dead fourth quarter in terms of credit expansion, and that is not a great sign for the economy,” said Faith Mwangi, an analyst in Nairobi at Exotix Partners LLP.

KPMG, a consulting firm, warned a that higher taxes on money transfers introduced this year will also hinder attempts to boost financial inclusion.

Kenyan stocks rose on Monday and Tuesday in what could be a sign that prices are becoming ‘too good to ignore,” according to Kenneth Minjire, head of securities at Nairobi-based Genghis Capital. But local institutional investors are not yet biting, he said.

Still, “foreign investors are selling and there are no serious buyers on the other side,” he said. “That is why the market is depressed and why it will remain depressed.”

To contact the reporter on this story: Adelaide Changole in Nairobi at achangole2@bloomberg.net

To contact the editors responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net, Paul Wallace, Robert Brand

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