Capital Markets

Kenyan shares hit 4-week high as foreign investors return

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Trading at NSE. Kenyan shares soared on Friday to a four-week high as foreign investors returned to the market. Photo/FILE

Kenyan shares soared on Friday to a four-week high as foreign investors returned to the market, while the shilling ended steady with traders forecasting a gloomy outlook.

The benchmark NSE-20 share index jumped 1.3 per cent to 4,720.53 points, a level last reached on June 17. The index is up 12.7 per cent so far this year.

It lost 8.2 per cent in June when investors took profits on this year's rally after a peaceful election. The decline was driven by the prospect of an easing of US economic stimulus measures and concerns the government may bring back a capital gains tax.

"There is a sense that the (Kenyan) economy is going in the right direction," said Eric Musau, an analyst at Standard Investment Bank.

"Some of the uncertainties like the VAT (value-added tax) Bill looks like it's going to be passed, and the banks have also given in to the 10 per cent duty on service fee."

The government plans to charge VAT on more goods and services and introduce other taxes to help plug a deficit in its annual budget.

Mobile phone service provider Safaricom, the most capitalised stock on the bourse, rose 2.2 per cent to Sh7.05 a share. It accounted for 61 per cent of the volume traded on Friday.

Forex

In foreign exchange, the shilling was posted at 87.25/35 to the dollar by the 1300 GMT market close, a new five-month low, but barely changed from Thursday's close of 87.20/30.

"We expect the shilling to remain under pressure in the days ahead as dollar demand from oil marketers and manufacturers continues," said Bank of Africa in a daily note.

The shilling has lost 1.5 per cent against the dollar since July 3 and traders said they were watching out for any intervention from the central bank to prop up the currency.

The bank intervened to sell an unspecified amount of dollars on May 29 after the shilling dropped 1.7 per cent over five sessions. It has also actively mopped up liquidity on money markets.

The shilling initially slid with other emerging market currencies when the US Federal Reserve hinted it would soon unwind its massive stimulus programme.

It now faces pressure from unrest in Egypt, the biggest buyer of Kenyan tea. Tea is Kenya's top foreign currency earner.

Government bonds worth Sh1.2 billion ($13.8 million) were traded, up from Sh755.1 million on Thursday.