In many ways, Kenya's current economic situation resembles that of the developed world. We are all struggling to return to normalcy following the two-year global Covid-19 pandemic, but the post-pandemic world presents new challenges for business and investing.
First, major central banks lowered interest rates to record lows in March 2020 to save the economy from collapse, and are now accelerating interest rate hikes to combat rising inflation. Globally, quantitative tightening measures are killing aggregate demand, as low-income earners struggle to balance their household budgets.
The cost of living has risen, as has the cost of credit. After purchasing the necessities, the majority of the world's population has little or no disposable income. This is a bad sign for the stock market, as evidenced by the bear market that began in January 2022.
The energy sector is the only one that has universally rallied during the period. This implies that energy stocks have been hot and may continue to be so in the third and fourth quarters of 2022.
With the recent war in Ukraine appearing to last longer, demand for aircraft, arms, and equipment may be on the rise, as evidenced by the recent rise of aerospace and defence stocks.
Even though we are in a food, inflation, war, and high-interest rate crisis, demand for consumer staples, medical products, and telecommunication services may not decline because they are required for living and communicating.
This implies that their demand may be resilient, and key brands may be able to command higher prices and thrive in this environment. This puts companies like Safaricom in a resilient ranking as its products are primarily needed and are a part of our modern way of life.
While Kenyan insurance penetration remains decades behind that of the developed world, western countries are very committed to their insurance plans. This implies that insurance stocks may do well in this environment.
In addition, the current food crisis may result in attempts by most governments to ensure food sufficiency by raising agricultural production in the next couple of quarters. This may create higher demand for agricultural inputs and raise revenues for stocks that deal in agricultural inputs such as fertiliser and equipment.
The writer is a markets analyst with EGM Securities
