Peaceful vote pays dividends as bourse and shilling strengthen

Markets reacted positively to the outcome of the concluded referendum with shares rising and the shilling strengthening against the dollar, signalling increased investor confidence in the economy.

Shares at the Nairobi Stock Exchange gained across most counters pushing the market index by 76 points to close trading at 4667 points on higher demand, notably from foreign investors, amid thin supply.

The Kenya shilling strengthened significantly to Sh79.50 up from Sh80 at the close of trading on Tuesday.

Markets were closed on Wednesday for the referendum.

“We have seen rising demand on all counters while the shilling has shown increased strength against major currencies, an indication that there is rising confidence in Kenya,” said Vimal Parmar, an investment analyst at Kestrel Investment Bank.

Equity turnover

But trading at the bourse was lower yesterday compared to Tuesday since both the equity turnover and shares traded dropped — a signal of cautious trading amid the vote.

The number shares traded dropped to 24 million from 51 million while turnover dropped Sh499 million from Sh765.8 million.

The NSE, which had already risen 37 per cent since the year opened and went on a renewed rally a few days to the voting date, rose to a two-year high by the end of trade on Thursday, buoyed by the 67 per cent endorsement of the proposed constitution that is expected to boost stability and growth.

Market players attributed the sudden shift to renewed confidence from foreign investors.

“Foreign investors who had taken a wait-and-see attitude regained confidence in the bourse as the voting date drew near,” said Vimal, indicating that there has been increased activity across the board especially on banking sector counters as they are expected to post high results in their first half announcements this month.

Financial analysts are optimistic that the index could rise a further 25 per cent to cross 5000 points by year-end.

The shilling, which is said to be riding on the back of major world currencies that have strengthened against the US dollar, is likely to reach Sh79 against the dollar in the short term but may remain at that level for a while as most of the factors that have caused its depreciation are externally generated, including effects of the Euro zone debt crisis.

Going forward

“These gains on the shilling are not sustainable going forward and should not be weighty as Kenya is a current account deficit country,” said Eric Musau, an investment analyst at Africa Alliance Investment Bank.

Currency fluctuations are also an additional factor for foreign investors to consider when transacting at the bourse as their gains or losses are affect returns.

Where the depreciation of the shilling makes local stocks appear cheap in dollar terms when buying, it makes it expensive for a foreign investor who wants cash-in on their investments as they stand to lose more in foreign losses.

In general the county’s economic radar has been showing very positive signs in recent weeks as the country moved closer to the historic vote on the constitution.

The national mood has been interpreted by currency traders as a significant step towards diffusion of potential political tension and the uncertainty that surrounds general elections in Kenya, which has in turn positive affected investor confidence.