Kenya’s stock markets will continue to attract foreign investors and local fund managers as the cost of loans is reduced following the reduction of the month-on-month inflation and a resurgent local economy, fund managers said.
The British American Asset Managers Managing Director, Dominic Kiarie, said the stock market was expected to remain strong due to the reduction in the cost of borrowing.
The recent signing of a common market agreement between Kenya and its four other East African Community (EAC) neighbours — Burundi, Rwanda, Uganda and Tanzania — is also a major factor to consider as the local stock market reacts to fresh optimism.
The British American Asset Managers cited the low inflation environment that Kenya has recorded over the last two months. The month-on-month inflation stood at 4 per cent.
The economy is also expected to grow at an average of 4 per cent this year, from the 1.7 per cent it recorded in 2009, due to the effects of the country’s post-election violence.
Kiarie said the country’s stock markets would receive a major boost over the next three months, mainly coming from institutional investors and local investors at the stock market.
The Nairobi Stock Exchange (NSE) has recorded a new bullish run over the past month, with the market turnover hitting a historically high-level of Ksh1 trillion (1US$=Ksh76).
“The cost of funding is going to fall. The rate of inflation remains down. The low inflation and the affordable credit in the market will see more investors coming back to Kenya,” Kiarie told journalists.
He said the low inflation has led banks to announce lower rates of lending. The Central Bank of Kenya has also introduced the use of credit reference bureaus.
“Our overall view is the economic environment is going to lead the stock market to perform very strongly. The extreme success of this will be the investors getting good returns,” he said.
According to the Fund Managers, the local investors pulled out of the market due to the low returns. Most of the foreign fund managers pulled out due to the effects of the global financial crisis.
“The foreign investors are going to re-direct their investments to the equities market,” Kiaries said.
Kenyan firms, including Kenya Airways (KQ), have recorded a period of success at the stock market, after its share price, which hit Ksh118 at its highest in 2006, slid to a paltry Ksh20 per share. It has climbed to the region of Ksh60 a share.
The Kenya Commercial Bank (KCB), one of the largest banks, is also preparing to release about a billion shares, to finance its regional expansion.
Analysts see the Kenyan economy getting huge returns from the implementation of the common market treaty, signed recently. This is because Kenya has the largest manufacturing capacity. Its biggest export destination is the EAC.
The Kenya Association of Manufacturers (KAM) has already welcomed the reduction of the lending rates by Barclay Bank of Kenya.
But the analysts are concerned that the campaigns for a draft new constitution could lead to fresh divisions between the political groups in the country.