Tuesday, 12 March 2013

Bulls unleashed on Kenya's economy?

Kenya shilling: Gaining some muscle
AFTER A SLIGHT interruption by election petitions, the bulls are back and snorting. The rapid barometers of economic sentiment i.e. the NSE index and the shilling's exchange rate are galloping upwards. 

And analysts are reviewing Kenya's GDP growth year upwards to 7-8 per cent from the projected 6 per cent ceteris paribus.

The NSE index has hit a 57 month high of 5030  and has held above 5000 points. The shilling has also pushed past Kshs/USD rate of 85. It is now trading at Kshs 84.50 to the USD and is expected to make further gains going forward.

Analysts predict that the bulls will still be snorting for another few days before they find their level. One thing is certain though, all analysts say, the bullish sentiment is likely to be around for a while. 

The bulls did not begin yesterday. No. The country was bullish for much of last year. However, the uncertainties associated with the just concluded elections, put a damper on it. But with the election  and the  presidential petition a out of the way, the bull is  fully unleashed.

 The Kenyan economy, analysts say, is likely to outdo itself this year. Projections by the World Bank showed that the economy will grow by 5.2 per cent if the last elections are peaceful. Now analysts say that the  US$40 billion economy will grow by more than 6 per cent this year. Now analysts are reviewing their projections upwards.

At the securities market, equity prices hare siring by proportions uncommon in our market. Some have even breached the 10 per cent rise per day level. The NSE normally raises the red flag when a script’s price surges 10 per cent in a day. In the last two days, two scripts have surged to this level. Although CFC Stanbic retreated more than three per cent yesterday, it was still on the positive range.

Generally price surges ranged 0.93 to 9.92 per cent.  Even some sickly scripts such as Sameer Africa, makers of Motor tyres  surged past the Kshs 2.00 mark. Safaricom is now past its four high trading at kshs 6.25.  if this rise continues, we see several share splits in the exchange before the end of the year or early 2014. Possible candidates include such blue chips as East African Breweries which is now trading at kshs 320.00 and BAT which stands at Kshs 539.00. Other potential candidates would be nation media group and Jubilee insurance.

In the financial market, the shilling opened trade at a shilling higher to the US dollar, as importers and other currency speculators liquidated the dollar positions. The shilling is expected to continue stronger this week as more importers and currency speculators play safe and liquidate their dollar positions.

The Monetary committee has left Central Bank rates unchanged at 9.35 in bid to push lending rates down. The idea is to buoy domestic consumption. Also adding to the confidence was an announcement by the Ministry of Finance that Kenya will float a US$1 billion sovereign bond to finance infrastructure development in the country. The bond will be issued in September. There is a high demand for African sovereign debt in the international capital market is growing.  All African sovereign bonds issued over the last two years have been over-subscribed. In some instances the issues had to accept more. Kenya’s is likely to suffer the same fate. In fact finance ministry officials said that it is now opportune to issue the bond.

Nairobi Securities exchange:

The Bulls  are surging
So why the bullish capital market?  Kenya’s largest market, the COMESA/ EACM region, has already cheered the peaceful elections.  That means investors are expect a profitable  years this year and are therefore ready to back the risk. Uganda, Tanzania, Rwanda, Burundi Ethiopia, South Sudan and Somalia have pledged to work with the new government. These countries form Kenya’s largest export market for manufactured goods. In fact Uganda is the largest market for Kenyan goods, importing more than UK and US combined in 2011. Available data shows that even by June 2012, Uganda was still ahead of Britain and US combined.

Tanzania is the third largest destination for Kenyan exports but appears set to dethrone Britain from the second slot this year.  In 2011, Somalia, with all its chaos, imported twice what German-the largest economy in Europe- imported from Kenya. Rwanda too imported more than German.

The barometers of the Kenya economy - just like the electorate- have shrugged off threats by the Western to impose trade sanctions. And the west itself has confirmed that no such a thing was on the cards.  In fact the surge in the markets is pointer to the significance of the West to the Kenyan economy. The west is truly insignificant in Africa. Its imports are tiny  and even its financial muscle is weak.   Kenya finances 96 per cent of her budget from domestic taxes , leaving a tiny 4 per cent to be funded by donors. This has left the country fully in charge of its affairs. 



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