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

EU Court Fines Poland for Hosting CIA 'Black Sites'

Ruling is first time a court has acknowledged suspects were held and tortured at the sites, under US program launched following the 9/11 terrorist attacks More

Migrant Issues Close to Home Spur Groups to Take Action

Groups placing water, food in the desert, or aiding detainees after release, have one common goal: no more deaths of migrants crossing illegally into the US More

Video At AIDS Conference, Prevention Pill Stirs Excitement

Truveda shows promise, spurring debate over access and other approaches 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.
Treatment for Childhood Epilepsy Heats up Medical Marijuana Debatei
X
Shelley Schlender
July 24, 2014 6:43 PM
In the United States, marijuana is classed as an illegal drug by the federal government. But nearly half the states have legalized it, to some degree. Proponents say some strains of marijuana might have exceptional health benefits, for treating pain or inflammation in chronic conditions such as cancer, multiple sclerosis and epilepsy. Shelley Schlender reports on a strain of medical marijuana developed in Colorado that is reputed to reduce seizures in childhood epilepsy
Video

Video Treatment for Childhood Epilepsy Heats up Medical Marijuana Debate

In the United States, marijuana is classed as an illegal drug by the federal government. But nearly half the states have legalized it, to some degree. Proponents say some strains of marijuana might have exceptional health benefits, for treating pain or inflammation in chronic conditions such as cancer, multiple sclerosis and epilepsy. Shelley Schlender reports on a strain of medical marijuana developed in Colorado that is reputed to reduce seizures in childhood epilepsy
Video

Video Airbus Adds Metal 3D Printed Parts to New Jets

By the end of this year, European aircraft manufacturing consortium Airbus plans to deliver the first of its new, extra-wide-body passenger jets, the A350-XWB. Among other technological innovations, the new plane will also incorporate metal parts made in a 3-D printer. VOA's George Putic has more.
Video

Video Death Toll From Israel-Gaza Conflict Surpasses 700

Gaza officials say a shelling hit a compound housing a United Nations-run school in the Gaza Strip, killing more than a dozen people, during an Israeli offensive in the area. Heavy fighting between the Israeli military and Hamas militants continued on Thursday, pushing up the death toll. So far, more than 730 Palestinians and 35 Israelis have been killed in the conflict. VOA's Scott Bobb has the latest from Jerusalem.
Video

Video AIDS Conference Welcomes Exciting Developments in HIV Treatment, Prevention

Significant strides have been made in recent years toward the treatment and prevention of HIV, the virus that causes AIDS. This year, at the International AIDS Conference, the AIDS community welcomed progress on a new pill that may prevent transmission of the deadly virus. VOA’s Anita Powell reports from Melbourne, Australia.
Video

Video Israel Targets Gaza Supply Tunnels

The Israeli military has launched a ground operation in Gaza to destroy the myriad tunnels that may have been used to smuggle weapons to Hamas. VOA's Zlatica Hoke reports that could mean more hardship for the people of Gaza, who obtain some of their essential supplies through these underground passages
Video

Video Researchers Target Low-Cost Avatar Technology

Scientists at the University of Southern California Institute for Creative Technologies say 3-dimensional representations could revolutionize social media. Elizabeth Lee has more from Los Angeles.
Video

Video IAEA: Iran Turns its Enriched Uranium Into Less Harmful Form

Iran has converted its stockpiles of enriched uranium into a less dangerous form that is more difficult to use for nuclear weapons, according to the United Nations’ Atomic Energy Agency. The move complies with an interim deal reached with Western powers on Iran's nuclear program last year, in exchange for easing of sanctions. Henry Ridgwell reports for VOA from London.
Video

Video In Cambodia, HIV Diagnosis Brings Deadly Shame

Although HIV/AIDS is now a treatable condition, a positive diagnosis is still a life altering experience. In Cambodia, people living with HIV are often disowned by friends, family and the community. This humiliation can be unbearable. We bring you one Cambodian woman’s struggle to overcome a life tragedy and her own HIV positive diagnosis.

AppleAndroid