Kenya’s all-share index, sub-Saharan Africa’s best performer, is poised to match its 2012 advance next year should elections take place without sparking violence, according to Old Mutual Plc.
The Nairobi Securities Exchange’s All-Share Index has surged 37 percent so far in 2012, compared with a 30-percent drop last year, when the shilling plunged to a record low of 106.75 a dollar and interest rates climbed after inflation peaked at 19.7 percent. The rally will be spurred by further interest-rate cuts after 7 percentage points of reductions this year, Alistair Gould, Nairobi-based Old Mutual Securities’ head of trading, said.
The March 4 election is a test of Kenya’s political stability after the presidential vote in December 2007 was marred by allegations of vote-rigging, triggering ethnic clashes that left more than 1,100 dead. East Africa’s largest economy may expand 5 percent next year from an estimated 4.3 percent in 2012, fueled by slower inflation, lower interest rates and election spending, the World Bank said Dec. 5.
“Political risk is still hovering above the country right now and once we are through with our election process, we will definitely see a return of very good economic growth,” Gould said in a Dec. 13 interview. “Elections are the only thing that could have any negative impact on our country.”
More than 250 people have died in fighting in Kenya this year as ethnic groups and clans try to undermine each other’s political power, according to the Kenya Red Cross Society, a Nairobi-based medical charity. In the latest incident of violence, at least 39 people died following clashes in the Tana River delta today.
Old Mutual’s 11 top stock picks for 2012, which included Kenya Commercial Bank Ltd., NIC Bank Ltd. and British American Tobacco Kenya Ltd., posted a more-than threefold increase this year, according to Gould. Kenya Airways Ltd. and Centum Investments Ltd. went in the opposite direction, falling 44 percent and 7.4 percent. Old Mutual, based in London, is the U.K.’s third-largest insurer with 261 billion pounds ($423 billion) of funds under management. Its brokerage is Kenya’s 10th-largest by market share.
Stock investors may be concerned should none of the presidential candidates get more than 50 percent of the votes, triggering a runoff election, Faith Atiti, a research analyst at Nairobi-based NIC Securities Ltd., said.
“A higher risk perception ahead of the general elections will likely be the main catalyst for market volatility through the first quarter,” she said by phone from Nairobi Dec. 14. “The fears will be further aggravated by the potential of a runoff. The macroeconomic environment is really improved and there are no huge shocks expected. The biggest risk is the elections.”
Kenya adopted a new constitution in 2010 after almost 20 years of promises from political leaders to replace one dating back to the country’s independence from Britain in 1963. The charter aims to spread political power among dozens of ethnic groups and end quarrels over land distribution that were at the heart of the 2008 violence. The nation of 41 million people held its first of five-year multi-party general elections in 1992 with each one bar a vote in 2002 plagued by unrest.
The Nairobi Stock Exchange, which has a market value of 1.25 trillion shillings ($14.5 billion) is sub-Saharan Africa’s biggest bourse after South Africa, which has a market value of $509 billion, and Nigeria, according to data compiled by Bloomberg. About 20 million shillings to 26 million shillings in shares traded daily between Dec. 17 and yesterday.
Banking stocks including, Equity Bank Lt and Diamond Trust Bank Kenya Ltd. will probably lead the gains as borrowers will be attracted by cheaper loans that will boost lenders’ interest income, he said.
Construction companies will also be seeking more loans because of increased government spending on infrastructure projects, which will boost profit at companies such as Bamburi Cement Ltd., a unit of Lafarge SA, Gould said.
Gains on the Kenyan bourse this year have been led by Uchumi Supermarkets Ltd., the country’s only publicly traded retailer. Its shares, which resumed trading in May 2011 after the company came out of receivership in March 2010, have more than doubled this year. A 1.5 billion-shilling rights offer the retail chain plans to undertake next year will boost its stock and liquidity, Gould said.
The shares of NIC Bank, a Nairobi-based lender, almost doubled, while Safaricom Ltd., East Africa’s biggest mobile-phone operator, rallied 71 percent and Kenya Commercial Bank, the nation’s largest lender by assets and profit, surged 75 percent. Gains in NIC Bank were boosted by a 2 billion-shillings rights offer, he said.
Kenya Airways and East African Portland Cement Co. lead the laggards on the stock index this year.
Kenya Airways, sub-Saharan Africa’s third-largest airline, raised 14.5 billion shillings in a sale of stock to existing investors in June, less than the 20.7 billion shillings it sought for an expansion, as higher fuel prices and labor unrest cut profit. The shares have slumped 44 percent to 11.05 shillings today, below the 14 shillings rights offer price.
“Anyone who is buying into Kenya Airways is buying into a very long-term investment,” Gould said.
East African Portland Cement, the third-largest publicly traded maker of the building material, has slid 30 percent as the company posted a fiscal full-year loss after labor unrest shut down plants, cutting production. “The company itself is sound,” Gould said. “There are massive opportunities.”
The Central Bank of Kenya raised borrowing costs by 12.25 percentage points to a record 18 percent in 2011 to bolster the shilling and curb price pressures after the worst drought in six decades. Last month, the monetary policy committee cut the benchmark rate for the third time this year to 11 percent, as the inflation rate declined to 3.3 percent in November from 4.1 percent in October, slowing for the 12th month.
The shilling weakened 0.2 percent to 85.95 per dollar as of 5:17 p.m. in Nairobi today. That increased its drop this year to 1 percent. The benchmark Nairobi Securities Exchange 20 Share Index rose 0.1 percent yesterday to 4,127.60 for a 29 percent increase this year. The index peaked at 6,161.46 in January 2007, according to data compiled by Bloomberg.
The 36.9 percent gain in Kenya’s all-share index leads a 36.5 percent increase in the Nigerian Stock Exchange All Share Index.
Kenya’s stock indexes “remain below levels seen just before the last election,” Aly-Khan Satchu, chief executive officer of Rich Management Ltd., a Nairobi-based adviser to companies and high net-worth individuals, said in an e-mailed response to questions yesterday. The country has “failed to pass three out of the last four elections. Political risk remains the biggest risk to a continued rally.”