How markets are shrugging off opposition-led protests
Demonstrators engage in looting and destruction of properties of the Expressway along Mombasa Road at Mulolongo on July 12, 2023, during the anti-Government protests. PHOTO | WILFRED NYANGARESI | NMG
The Kenyan financial markets largely shrugged off disruptions caused by the opposition-led protests, recording gains in contrast with the business sector which has suffered losses running into billions due to closures.
The Nairobi Securities Exchange (NSE)on Wednesday recorded a gain of Sh10 billion in investor wealth to Sh1.783 trillion, having also recorded a Sh40 billion jump in market capitalisation last Friday when the new round of protests began.
During the earlier protests that took place on five different days between March and May, the market made a net gain of Sh22 billion in those trading sessions—with the biggest gain of Sh57 billion recorded on the day of the first protest on March 20.
The shilling also weakened by a smaller margin to the dollar by Wednesday afternoon compared to the previous trading session. It traded at an average of 141.25 units, having opened at an average of 141.20.
On Tuesday, it weakened by 14 cents, having opened trading on the day to 141.06 units to the greenback.
The apathy of the markets to political noise, analysts say, is largely due to the influence of foreign investors who remain more concerned with global risks when making moves in frontier markets.
These investors have a big influence on large blue chip stocks such as Safaricom, Equity Holdings, EABL and KCB, whose movement on a day-to-day basis the market mirrors.
“Right now the market is more responsive to external risks such as the US hiking its rates, because of the phenomenon with smaller stock markets where the majority of activity is driven by a few players, which in our case are foreign investors,” said Wesley Manambo, an analyst at city-based investment bank Genghis Capital.
“However, the stock market is not dislocated from the real economy. Once the global economic factors settle, that’s when we will realise the true impact of the political risk, where it might manifest through a delayed recovery for the Kenyan market compared to other peer markets.”
The indifference of the stock market to the political noise spared investors the kind of losses that business people have reported as a result of closures.
NSE chief executive Geoffrey Odundo said the bourse will continue to see an improved performance in the next few weeks because its current dividend yield has been attractive compared to those offered by money market assets.
“We have seen increased activity on the large-cap companies supported by the attractive valuations presented by the market. In addition, the current dividend yields have been attractive almost equivalent to those being offered by money market assets. The exchange has been resilient and we expect to see improved performance in the next few weeks,” he said.
In Nairobi, several businesses in the Central Business District remained shut on security concerns, with foot traffic also low throughout the day.
There were protests in other urban centres such as Nakuru, Machakos and Mombasa for the better part of the day, forcing a section of businesses in these towns to keep their doors shut.
The Kenya Private Sector Alliance (Kepsa) and the Federation of Kenya Employers (FKE) in separate statements lamented the negative effect of the protests on businesses, saying that the stoppages are slowing the recovery of the economy.
“Every time the country’s economic engines are closed for fear of theft and destruction from people who are taking advantage of the demonstrations occasions unnecessary losses to the tune of about Sh3 billion daily,” said Kepsa.
“For a struggling economy, reeling from the effects of a prolonged drought, General Election and economic slowdown last year and compounded by general global economic challenges, Kenya can ill afford the political activities currently at play.”
FKE chief executive officer Jacqueline Mugo said that aside from reducing productivity and blocking the free movement of goods in the country, the disruptions were hurting Kenya’s attractiveness to investors and tourists.
The sentiments of the two bodies come as businesses continue to encounter softening demand for their goods and services due to the rising cost of living in the country, which is set to worsen as the pass-through effects of higher VAT on fuel are felt from this month.
Businesses polled in the most recent Purchasing Managers Index (PMI) survey that is carried out by Stanbic Bank Kenya said that new orders have fallen every month between February and June, with the rate of decline quickening in the latter month.
The firms reported a lack of purchasing power in the economy due to high inflation and cash shortages, with output also falling due to low demand and rising input costs.
This rising cost of living has been cited by the opposition as the main grievance in the latest round of protests, unlike the previous ones between March and May when it demanded political reforms.
