to be favourite asset class amongst risk-averse foreign investors this year, dropped for the third straight day on Friday.
Official data from Nairobi Securities Exchange showed the equity market fell 1.19 percent day on day to 4,774.12 points, measured by NSE-20 share index that reflects performance of 20 most valuable stocks.
However, its earlier 10-day steady gain to Tuesday that took its performance to 4985.91 points-levels last seen in July 2009-as tracked by NSE-20 Share index, was too strong to erode in a week.
That rally helped the bourse, ranked second after Ghana in Africa, to edge up by a further 2.48 percent week on week compared to last week’s 4658.64 points.
The NSE-All Share Index(NASI) that tracks all the 64 quoted companies similarly posted a jump of 1.29 per cent.
The three-day dip has been largely linked to impending presidential election petition to be filed on Saturday by Raila Odinga, Kenya’s current prime minister.
The petition comes at the expiry of legally provided seven days after a president elect is elected, in thus case deputy premier,Uhuru Kenyatta.
Pinebridge Investments East Africa, the country’s largest Fund manager with over KSh130 billion(about $1.5 billion) wealth under its watch, has however backed equities to attract most of investment dollars flocking into Nairobi-the investment, financial and communication hub for Eastern Africa.
The rally has been attributed to a couple of drivers including good corporate earnings, dwindling interest rates and the March 4 largely peaceful March 4 General elections that has lowered political risk perception.
“Foreign funds will continue flowing in because the market is relatively cheap, valuation is now benchmarked against other global indices, corporate earnings averages at 20 per cent while dividend yields on some stocks are as high as 10 percent,” said the Fund’s chief executive Jonathan Stichbury in an interview last month when the company released a quarterly outlook report in late January.
The recent rally that witnessed close to seven per cent growth during the first two days of the week, has also been boosted by an influx of local institutional investors.
The trooping traders had decamped to high-return fixed income securities market,dominated by government as issuer and commercial banks as traders, following a corresponding high interest regime in 2011.
At the time, benchmark interest rates had spiked to 18 per cent. But it started tumbling last July to 16.5 per cent, then 13 per cent in September, 11 percent in November and the prevailing 9.5 percent set last January.
But Tuesday was an exceptional day on the Nairobi bourse.
Stocks traded at premium prices in what was described by analysts as “mad rush” for quoted equities with a considerable number hitting their record highs, some remaining unchanged while only three counters experienced a slight drop day on day.
The “rush” was also, to a large extent, spurred by successful expectations that the Central Bank of Kenya would retain its benchmark rate.
The chief lender as widely expected retained its key lending rate at 9.5 percent “to provide time for previous decisions to work through the economy.”
In retaining its key lending rate, the chief lender’s Monetary Policy Committee(MPC) cited risks in macroeconomic outlook that revolves around renewed upward drift in international oil prices.
The MPC also pointed at a weak outlook for the global economy with “expectation of a more pronounced recession in the eurozone and a slow recovery of the US economy” in a press statement Tuesday afternoon.
“This outlook, coupled with persistent balance of payments pressures due to the high current account deficit remain a threat to general stability of prices,” the press dispatch on Tuesday added. “However, the Committee will continue to closely monitor the macroeconomic aggregates and expectations dynamics to ensure that the policy stance continues to deliver the desired price stability.”
But was also the second trading day after Mr Kenyatta had been declared president elect on March 9.
“Most of the investors had delayed their decision to transfer their money pending the outcome of the outcome of presidential elections,” said Antony Kimani, an equity research analyst with Genghis Capital in Nairobi by way of telephone interview on Tuesday.
The premium valuations were however not sustainable long term, Kimani had projected.
He bet the stock market to climb down to subdued rallies in the next two to three months in favour of debt market.
“After the county governments take shape, we are going to see increased activity in the fixed income securities as they look for money to implement their projects.
“This will push interest up and investors are likely to shift to that segment.”
The just-ended elections ushers in two new governance systems-the Central Government and 47 County Governments with separate but complementing powers- under the year 2010 Constitution.
Signs of the government shift to debt market for cash are already manifest.
Finance minister Njeru Githae on Monday disclosed plans by National Treasury to raise $1 billion (about KSh86 billion) from a sovereign bond in September.
The proceeds from the country’s debut bond would be used to pay off the $600 million(about Ksh51.5 billion) syndicated loan from three foreign banks- London’s Citibank, Standard Chartered Bank and South Africa’s Standard Bank. The loan was inked in May last year.
The shilling, on the other hand, has also come under pressure in what was alluded to greater corporate demand for the dollar as they await the outcome of the presidential vote petition.
Legally, the outcome of the petition to be determined by the country’s highest court, its first after being created by a new Constitution overwhelmingly passed in 2010, is expected by 30th April.
Data from the Central Bank on Friday showed the local currency depreciated 0.34 percent day on day to the US Dollar to 85.63 from Thursday’s 85.34.
Pinebridge has forecast the shilling to slide to a resistance level of 90 against the US dollar on increased import bill.
“Depreciating value of the currency is not always bad,” its head of research, Edward Gitahi, said in a telephone interview. “We are confident in regulatory interventions in the short term and there is enough room for adjustment.”
