Kenyan Attack Overlooked in Markets as Shilling Rallies
Prospects for faster growth in Kenya are overshadowing concern that the nation’s worst attack in 15 years will undermine confidence in the economy as the benchmark stock index climbs the most in Africa and the shilling rallies.
Kenya’s currency has advanced 1.1 percent to 86.40 per dollar since the day before the Sept. 21 raid on a shopping mall in Nairobi, the most of 24 African currencies tracked by Bloomberg after the Guinean Franc. Kenyan shares advanced for a fifth day on the Nairobi Securities Exchange with the FTSE NSE 25 Index index increasing 2.8 percent since the incident.
At least 61 civilians and six soldiers died when gunmen from Somalia’s al-Qaeda-linked al-Shabaab militia entered the upscale Westgate shopping mall, the worst death toll since the U.S. Embassy in Nairobi was blown up in 1998. Kenya’s $37 billion economy, the largest in East Africa, is forecast to grow as much as 6 percent in 2013 compared with 4.6 percent last year, according to the Treasury.
“The shilling is a bullish signifier that this is a very resilient economy in the face of such an event,” Aly-Khan Satchu, chief executive officer of Nairobi-based Rich Management Ltd., an adviser to companies and wealthy individuals, said by phone yesterday. “The performance of the shilling speaks to a lot of demand for Kenyan assets.”
The government sold 12-year infrastructure bonds on Sept. 25 at a yield of 12.36 percent, down from 16.64 percent at the last sale of similar securities in February 2012, after luring almost double the demand than was offered. Kenyan consumer inflation was 8.3 percent in September, compared with 6.7 percent in August, and has fallen from a peak of 19.7 percent in November 2011.
Kenya’s Treasury said as recently as Sept. 27 it will go ahead with plans to sell as much as $2 billion of Eurobonds by December.
Moody’s Investors Service said last week the attack may curb government revenue, mostly from tourism, and is “credit negative.” Kenya earns about $1 billion a year from the industry, the second-biggest generator of foreign currency after tea sales. Kenya’s long-term, foreign currency debt has been assigned a B1 rating by Moody’s, four steps below investment grade and on par with Zambia.
Tourism revenue fell to 96 billion shillings ($1.1 billion) in the 12 months through June from 103 billion shillings a year earlier as visitors stayed away before and after elections in March, concerned about a repeat of violence after a disputed vote in 2007, Tourism Secretary Phyllis Kandie said on Sept. 11. Kenya’s budget shortfall may reach 7.9 percent of gross domestic product in the fiscal year through June 2014, compared with 6.7 percent in 2012-13, the Treasury said in June.
While tourism may be hit, “there’s no reason to anticipate, as Moody’s has suggested, that everything automatically looks very negative after the attack,” said Razia Khan, the head of African economic research at Standard Chartered Plc in London.
On the NSE, the FTSE NSE 25 Index advanced 0.4 percent to close at 169.25 today. The gauge’s gain of 6.9 percent in September was the biggest since May. The Kenyan bourse has advanced 32 percent this year, Africa’s second-best performing stock exchange after Ghana. The shilling traded at a record low of 106.75 per dollar on Oct. 11, 2011.
Al-Shabaab threatened to attack Kenya after the country invaded southern Somalia in October 2011 to fight the militants who have been trying to establish an Islamic state in the Horn of Africa nation since at least 2006. The militia has warned of further bloodshed unless Kenya withdraws its forces.
“The attack didn’t necessarily erode broader market confidence because security challenges are to an extent embedded in the political risk scenario,” said Nema Ramkhelawan-Bhana, Africa analyst at FirstRand Ltd. (FSR)’s Rand Merchant Bank in Johannesburg. “There is a level of caution that’s broadly priced in to the market.”
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