News / Africa

Kenya Election Cheers Investors, But Worries Remain

Investors walk out of the Nairobi Stock Exchange in Kenya's capital Nairobi, Mar. 4, 2010.
Investors walk out of the Nairobi Stock Exchange in Kenya's capital Nairobi, Mar. 4, 2010.
Reuters
— Kenya's peaceful election has given investors an added impetus to buy assets in East Africa's biggest economy, but a legal challenge to the result and the possible international trial of the winner could dampen enthusiasm.

Kenya, like many other frontier markets, is enjoying strong growth, with its rising consumer class and high bond yields attracting international investors.

Kenya's stock market hit four-and-a-half year highs and the shilling surged to four-month highs after the declaration last weekend of Uhuru Kenyatta as president, without the 2008 post-election violence which left 1,200 dead.

The election has given many the confidence that recent gains can be sustained.

"There is a sigh of relief, it's not the nightmare that everyone feared," said Daniel Broby, chief investment officer of frontier fund manager Silk Invest, who holds Kenyan assets.

Kenyatta won slightly over 50% of the more than 12.3 million votes cast, so avoiding the need for a second round.

"It was a pretty close shave, but at the end of the day, it's nothing to get too worked up about - the fear was that there would not be a majority," Broby added.

Kenya is one of only two African countries - along with Nigeria - in the benchmark MSCI frontier stock market index. Kenya is the second-best performer in the index this year, outpacing most other markets and lagging only the United Arab Emirates.

The stock market is the largest in East Africa and is seen as an investment hub for the region. Foreign participation has been increasing and is now more than 50%.
        
Stocks rally

Kenyan stocks rallied 13% this year even before Kenyatta's victory, and have added another 3% this week.

Popular stocks include East African Breweries, up 23% this year, telecom group Safaricom, also up 23%, and Kenya Commercial Bank, up 40%, all of which offer exposure to the country's booming consumer demand.

Kenya also has a relatively well-developed local bond market and experts say a planned Eurobond is likely to be popular with investors who have snapped up bonds from other African countries such as Zambia and Nigeria.

In terms of policy direction, investors say little differentiates Kenyatta from his defeated rival Raila Odinga. They have been further encouraged by the central bank's success in keeping the currency steady.

"The election result is not likely to lead to a major shift of economic policy," said Graham Stock, strategist at frontier fund manager Insparo. "The currency has been very stable, there is no reason to think that won't continue."

Economic activity is expected to expand, as businesses initiate projects that were on hold before the election. GDP growth is seen as much as 6% this year.

Investors have been reassured by a reduction in political risk since the introduction of a new constitution in 2010, which included the reform of the judiciary and plans for a devolved system of government.

Market less bullish
        
But bond investors are less bullish, noting that Kenyan debt has already enjoyed a strong rally.

"A year ago when 10-year yields were close to 20% it was attractive but now it's down to 9% the yield is not compelling, especially with political uncertainty hanging over,'' said Stuart Culverhouse, chief economist at broker Exotix.

Investors point to two sources of uncertainty - Odinga's challenge to the election result, and the International Criminal Court's indictment of Kenyatta.

Odinga's Coalition for Reforms and Democracy plans to seek the nullification of the election result on grounds that Kenyatta's votes had been increased illegally.

The risk is of subsequent violence should Odinga lose the case, which may be heard in the Supreme Court in the next couple of weeks. That stirs memories of December 2007 when President Mwai Kibaki was declared the winner, but Odinga said the vote was rigged.

Riots in early 2008 plunged Kenya into weeks of tribal bloodshed, scaring off investment. Under a power-sharing deal brokered to end the violence, Odinga became prime minister.

"It's a very fine line for Odinga to tread, the example from 2008 shows how dangerous it can be," said Stock.

Meanwhile, Kenyatta and his running mate, William Ruto, have been charged by the ICC over their alleged role in the blood-letting five years ago. They deny the accusations and say they will cooperate with investigations. The trial is due to start in July.

The United States and other Western powers, big donors to Kenya, said before last week's election that a Kenyatta win would complicate diplomatic ties with a regional ally in the battle against militant Islam.

The election result is "a relative negative outcome for Kenya's international relations," analysts at Renaissance Capital said.

Ratings agency Fitch, which rates Kenya at sub-investment grade of B-plus with a stable outlook, also said "a political vacuum that delays reform could develop, should the president and deputy president face a lengthy trial."

Renaissance added, however, that Kenya's dependence on aid was small, so any suspension if Kenyatta were found guilty would have limited impact.

And those keen to buy Kenya's assets, such as David Mcilroy, chief investment officer of Alquity, are prepared to take the risks.

"The international community will take a pragmatic approach," he said. "I imagine the trial will take some time - we can park that for now."

You May Like

University of Michigan Wins Solar Car Race

Squad guided its student-designed solar-powered vehicle to fifth consecutive time victory in eight-day bi-annual American Solar Challenge More

Nigerian Islamic School Tries to Combat Boko Haram

Kaduna school headmaster teaches his students that what militants are doing is are doing is 'a total misunderstanding of the Islamic religion' More

University Trains Students to Advocate for Deaf People Worldwide

Program prepares graduates to advocate internationally for access to education, jobs for people with disabilities More

This forum has been closed.
Comments
     
There are no comments in this forum. Be first and add one

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Vietnamese Staging Chinese Product Boycott After Oil Rig Spati
X
Reasey Poch
July 28, 2014 7:18 PM
China recently pulled an oil rig from an area of the disputed South China Sea that Vietnam also claims. Despite the action, the incident has had a lingering effect on consumers in Vietnam. VOA's Reasey Poch reports from Hanoi on an effort to boycott Chinese products.
Video

Video Vietnamese Staging Chinese Product Boycott After Oil Rig Spat

China recently pulled an oil rig from an area of the disputed South China Sea that Vietnam also claims. Despite the action, the incident has had a lingering effect on consumers in Vietnam. VOA's Reasey Poch reports from Hanoi on an effort to boycott Chinese products.
Video

Video ESA Spacecraft to Land on a Comet

After a long flight through deep space, a European Space Agency probe is finally approaching its target -- a comet millions of kilometers away from earth. Scientists say the mission may lead to some startling discoveries about the origins of the water on earth. VOA’s George Putic has more.
Video

Video Young Africans Arrive in US for Leadership Program

President Barack Obama's Young African Leadership Initiative has brought hundreds of young Africans to the United States for a six-week program aimed at building their knowledge and skills in fields such as public administration and business. Out of the 50,000 young Africans who applied for the program, just one percent was accepted. VOA's Laurel Bowman caught up with some of those who made the cut and has this report.
Video

Video In Honduras, Amnesty Rumors Fuel US Migration Surges

False rumors in Central America are fueling the current surge of undocumented young people being apprehended at the U.S. border. The inaccurate claims suggest the U.S. will give amnesty to young migrants from the region. As VOA's Brian Padden reports from Honduras, these rumors trace back to President Obama's 2012 executive order to halt deportations for some young undocumented immigrants already living in the United States.
Video

Video Students in Business for Themselves

They're only high school students, but they are making accessories for shoes, fabricating backpacks and doing product photography - all through their own businesses. It's the result of a partnership between a non-profit organization that teaches entrepreneurship and their schools. VOA's Mike O'Sullivan and Deyane Moses met the budding entrepreneurs near Los Angeles.
Video

Video Astronauts Train in Underwater Lab

In the world’s only underwater laboratory, four U.S. astronauts train for a planned visit to an asteroid. The lab - called Aquarius- is located five kilometers off Key Largo, in southern Florida. Living in close quarters and making excursions only into the surrounding ocean, they try to simulate the daily routine of a crew that will someday travel to collect samples of a rock orbiting far away from earth. VOA’s George Putic has more.

AppleAndroid