Kenya’s stock market investors have
defied the pre-election gloom to increase their trading in shares at the
Nairobi bourse, placing the market in a rare position of strength ahead
of the Tuesday polls.
Market data shows that the value
of shares traded daily in the month of July averaged Sh1.01 billion or
rose to a two-year high, up from the Sh745 million average in the three
months to June, signalling a sizeable number of investors are
positioning themselves for expected capital gains after the August 8
elections.
Analysts said many of the investors are
also seeing stocks as offering a safe haven for their wealth unlike
physical assets that can be destroyed in the event that political
turmoil occurs.
“The market offers a safe haven for
investments at a time when we see a bit of slowdown in the rest of the
economy, and it also carries value since it is only starting the
recovery from the bear run,” said ABC capital corporate finance manager
Johnson Nderi.
Changing trend
This
is a departure from previous trends when trading at the Nairobi
Securities Exchange (NSE) plummeted in the run-up to the elections as
was the case in 2013 and 2007.
The volume of trading at
the NSE declined progressively ahead of the 2013 elections from Sh14.7
billion in February to Sh11.2 in March and Sh9.9 billion in April before
a slow recovery began in May.
The
bottoming out in April was informed by the fact that although the polls
were peaceful, the final outcome was delayed by a petition filed in the
Supreme Court challenging the outcome of the presidential vote, causing
uncertainty in business circles.
In 2007, turnover at
the stock exchange fell to Sh6 billion in December from Sh7.9 billion a
month earlier as the country prepared to hold the contentious elections,
whose disputed outcome led to widespread violence and brought the
economy to a standstill in early 2008.
PHOTO | BD GRAPHIC
The rapid market recovery and huge
capital gains that followed the crisis appear to have convinced many of
the investors that there is wisdom in taking positions ahead of the
polls.
“In 2008, after hitting rock bottom in March
the NSE recovered quickly and some active traders doubled their
investments. It could accelerate again this year when the political
noise comes to an end,” said Mr Nderi.
Other sectors declining
The
rise in stock market activity is in stark contrast to the goings-on in
sectors such as manufacturing, banking and retail — where activity has
slowed down as election day draws closer.
The Kenya
Association of Manufacturers’ (KAM) latest industry barometer report
shows that 55 per cent of the 31 respondents (drawn from 12 sectors)
said that they would limit their capital investment in the next 12
months due to the uncertain political environment.
The
manufacturers have also become pessimistic over the deteriorating
business climate in the second quarter of the fiscal year compared to a
similar period last year, with 57 per cent of those surveyed haveng a
gloomy outlook compared to just 13 per cent who remain optimistic.
“The
optimism index shows a dramatic decrease to 13 per cent, pointing to
challenges in the manufacturing industry and uncertainty in the
operating environment, especially owing to the General Election period,”
says KAM.
In the second quarter of last year, 33 per
cent of respondents remained optimistic of the business environment,
compared to 16 per cent who were pessimistic. The rest were uncertain.
ALSO READ: How will polls impact Kenya’s real estate?
Firm cautious
Some firms have signalled their concerns over the polls by taking their employees through safety and emergency response drills.
They
have also enhanced strategies to secure key assets such as buildings
and motor vehicles that would be at greatest risk in the event of
violence.
The situation is no different in the
financial services sector where a number of banks have cut back their
lending to individuals ahead of the election, adding to an already dire
situation where credit growth to the private sector has slowed down to
just 2.1 per cent.
Kenya’s trading partners in the
region Uganda, Rwanda and Burundi are also said to be shifting some of
their cargo business to Tanzanian ports fearing disruption on the
northern corridor route.
It is worth noting that the
higher activity in the stock market is mainly being driven by local
investors, who are showing renewed optimism after absorbing a two-year
bear run.
Foreign investors have been selling off shares in the past two months, indicating their cautious approach to Kenyan elections.
NSE
turnover rose to Sh21.3 billion in July, up from Sh17.1 billion in June
and Sh16.3 billion in May, showing a steady rise in activity as the
election draws closer.
Analysts said local investors
were likely to stick with the market even when there is political risk
because they understand the terrain better than their foreign
counterparts.
“If it was foreigners buying or pumping
up the market, we would be more worried as they would quickly disappear
at the slightest hint of trouble,” said NIC Securities head of research
Timothy Wambu.
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