Mobius Says Kenya Investment Prospects Outweigh Vote Risk
The country on March 4 holds its first national vote since a disputed ballot in 2007 triggered clashes that killed more than 1,100 people. The unrest caused growth in East Africa’s biggest economy to slump by two-thirds to 1.5 percent in 2008 as farm output collapsed, the shilling declined 8.5 percent against the dollar and the benchmark stock index dropped 11 percent.
Since campaigning began last year there have been sporadic ethnic and political clashes and controversy over a leading presidential candidate’s impending trial for crimes against humanity at the Hague-based International Criminal Court. That’s set against expectations the economy may grow as much as 6 percent this year from about 5 percent in 2012, propelled by an expanding middle class and growth in banking and technology.
“The reward is worth the risk,” said Mobius, 76, who oversees more than $50 billion as executive chairman of Templeton. “The election turmoil has not yet impacted the economy and is unlikely to do so unless widespread violence breaks out. Investors seeking growth and profitability are attracted to Kenya since the country and companies in the country are growing at a good pace.”
The presidential front-runners, Prime Minister Raila Odinga, 68, and Deputy Premier Uhuru Kenyatta, 51, have 44.4 percent and 44.8 percent support respectively, according to a Feb. 22 opinion poll published by Ipsos-Synovate Kenya, the Nairobi-based research company. Neither may get the 50 percent- plus-one majority needed for an outright win, the poll showed.
A runoff election would be held in April.
Accusations of vote-rigging by opposition supporters aligned with Odinga sparked the 2007-08 clashes, leading to retaliation by followers of President Mwai Kibaki. Prosecutors at the International Criminal Court accuses Kenyatta and his running mate William Ruto of directing ethnic mobs to murder and drive people from their homes. They both deny the charges.
“If they did not run, it would be positive,” Mobius said in an e-mailed response to questions. “However, we must recognize the democratic process and if the High Court and ICC do not reach decisions to ban them from running, then the electoral results must be accepted.”
The High Court cleared the two men to run on Feb. 15, saying the Supreme Court must rule on their eligibility.
The U.K. and European Union have said they make only essential contact with ICC indictees. U.S. Assistant Secretary of State for African Affairs Johnnie Carson, in a conference call with reporters on Feb. 7, told Kenyan voters that “choices have consequences.”
Foreign investors have helped Kenya’s NSE All Share index gain 12 percent this year, adding to a 39 percent rise last year that ranked the guage as sub-Saharan Africa’s best performer. Investment from abroad represented 49 percent of all trading in Kenyan equities last year, compared with 10 percent in 2007, according to data from the Nairobi Securities Exchange.
The International Monetary Fund’s 6 percent growth forecast for Kenya outpaces the average estimates for other emerging and developing markets at 5.5 percent and compares with expectations the global economy will grow 3.5 percent in 2013.
“There is strong structural growth in Kenya,” said Alykhan Nathoo, a partner with London-based Helios Investment Partners, an Africa-focused private investment firm. “This is underpinned by a growing consumer class, strong development in infrastructure and reforms in the judiciary. Any impact of the election would, in our view, be short-term in nature and be far outweighed by these positive structural factors.”
Helios has $1.7 billion under management, according to its website. The firm’s portfolio includes stakes in Equity Bank Ltd. (EQBNK), Kenya’s second-largest lender by market value, and Vivo Energy Kenya Ltd., a closely held motor-fuel distributor.
Reforms under a constitution enacted in 2010 have strengthened the independence of the judiciary and built safeguards into the electoral process to make it less vulnerable to tampering. The candidates have said they are prepared to concede defeat and settle any disputes in court.
“The new constitution and judiciary reforms means that there are sufficient mechanisms in place to deal with the issues,” said Humphrey Gathungu, a portfolio manager at Stanlib Asset Management Ltd., which has as much as 15 percent of its $250 million African equity funds invested in Kenya.
Kenya’s economic growth makes investment in its banking stocks “particularly” attractive, said Mobius, whose $16 million Africa Fund has Kenya Commercial Bank Ltd. (KNCB), the largest bank by asset value, as its fifth-largest holding. The stock has surged 29 percent this year, making it the best-performing bank over that period, according to data compiled by Bloomberg. Opportunities are also emerging in retail, telecommunications and agriculture, he said.
The country has become a leader in mobile banking following Safaricom’s introduction of M-Pesa in 2007. The mobile-phone payment service carries out more transactions monthly within Kenya than are processed globally by Western Union Co., the world’s biggest money-transfer business, according to the IMF.
The Kenyan shilling gained for a second day, advancing 0.2 percent to 86.07 per dollar by the close in Nairobi, its strongest this year, according to data compiled by Bloomberg.
“It’s likely to be a fairly rocky and volatile period through the elections,” said Malcolm Gray, a fund manager at Cape-Town based Investec Asset Management Ltd., which oversees $50 million of Kenyan equities. “The long-term opportunities in Kenya remain attractive.”
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