Kenyan Shilling, Stocks Gain on Bets of Violence-Free Elections

Kenya’s shilling headed for its biggest weekly gain in more than 14 months and stocks advanced on expectations that presidential elections set to take place on Monday will pass peacefully.

The currency of East Africa’s biggest economy gained 0.2 percent to 85.88 per dollar by 2:42 p.m. in the capital, Nairobi. A close at that level would bring the shilling’s gain to 1.8 percent this week, the biggest since the week of Dec. 16, 2011, according to data compiled by Bloomberg. Kenya’s benchmark All Share index, sub-Saharan Africa’s second-best performer this year, headed for a 1.6 percent weekly gain.

“Guys are selling their dollars to buy shillings because of the stability in the political scene,” Martin Runo, a trader at African Banking Corp. in Nairobi, said in a phone interview.

Next week’s presidential vote will be the first since disputed elections in 2007 triggered two months of ethnic fighting in which more than 1,100 people died and another 350,000 fled their homes. The ballot will test the power of a 2010 constitution, drafted to decentralize power, create accountable government and prevent similar violence by sharing resources more equitably.

The shilling may weaken once the elections are over, particularly if there is no clear winner in the first round and perceptions of political risk increase, Absa Capital said in an e-mailed research note yesterday. That will be offset by the central bank’s continued draining of liquidity from the domestic money market to stabilize the shilling, it said.

“Provided there is not a repeat of the violence that we saw in 2008, the rate of expected depreciation is likely to be restricted by persistently tight liquidity management,” Absa said. It forecast the shilling may weaken to as much as 91 per dollar in the next three months before recovering in the second half of this year.

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