A sizeable number of investors are positioning themselves for expected capital gains after the August 8 elections.
Many investors see stocks as offering a safe haven for their wealth unlike physical assets that can be destroyed in the event of political turmoil.
This is a departure from previous trends when trading at the Nairobi Securities Exchange (NSE) plummeted in the run-up to the elections as was the case in 2013 and 2007.
Kenya’s stock market investors have defied the pre-election gloom to increase their trading in shares at the Nairobi bourse, placing the market in a rare position of strength ahead of the Tuesday polls.
Market data shows that the value of shares traded daily in the month of July averaged Sh1.01 billion or rose to a two-year high, up from the Sh745 million average in the three months to June, signalling a sizeable number of investors are positioning themselves for expected capital gains after the August 8 elections.
Analysts said many of the investors are also seeing stocks as offering a safe haven for their wealth unlike physical assets that can be destroyed in the event that political turmoil occurs.
“The market offers a safe haven for investments at a time when we see a bit of slowdown in the rest of the economy, and it also carries value since it is only starting the recovery from the bear run,” said ABC capital corporate finance manager Johnson Nderi.
Changing trend
This is a departure from previous trends when trading at the Nairobi Securities Exchange (NSE) plummeted in the run-up to the elections as was the case in 2013 and 2007.
The volume of trading at the NSE declined progressively ahead of the 2013 elections from Sh14.7 billion in February to Sh11.2 in March and Sh9.9 billion in April before a slow recovery began in May.
The bottoming out in April was informed by the fact that although the polls were peaceful, the final outcome was delayed by a petition filed in the Supreme Court challenging the outcome of the presidential vote, causing uncertainty in business circles.
In 2007, turnover at the stock exchange fell to Sh6 billion in December from Sh7.9 billion a month earlier as the country prepared to hold the contentious elections, whose disputed outcome led to widespread violence and brought the economy to a standstill in early 2008.
PHOTO | BD GRAPHIC
The rapid market recovery and huge capital gains that followed the crisis appear to have convinced many of the investors that there is wisdom in taking positions ahead of the polls.
“In 2008, after hitting rock bottom in March the NSE recovered quickly and some active traders doubled their investments. It could accelerate again this year when the political noise comes to an end,” said Mr Nderi.
The rise in stock market activity is in stark contrast to the goings-on in sectors such as manufacturing, banking and retail — where activity has slowed down as election day draws closer.
The Kenya Association of Manufacturers’ (KAM) latest industry barometer report shows that 55 per cent of the 31 respondents (drawn from 12 sectors) said that they would limit their capital investment in the next 12 months due to the uncertain political environment.
The manufacturers have also become pessimistic over the deteriorating business climate in the second quarter of the fiscal year compared to a similar period last year, with 57 per cent of those surveyed haveng a gloomy outlook compared to just 13 per cent who remain optimistic.
“The optimism index shows a dramatic decrease to 13 per cent, pointing to challenges in the manufacturing industry and uncertainty in the operating environment, especially owing to the General Election period,” says KAM.
In the second quarter of last year, 33 per cent of respondents remained optimistic of the business environment, compared to 16 per cent who were pessimistic. The rest were uncertain.
Some firms have signalled their concerns over the polls by taking their employees through safety and emergency response drills.
They have also enhanced strategies to secure key assets such as buildings and motor vehicles that would be at greatest risk in the event of violence.
The situation is no different in the financial services sector where a number of banks have cut back their lending to individuals ahead of the election, adding to an already dire situation where credit growth to the private sector has slowed down to just 2.1 per cent.
Kenya’s trading partners in the region Uganda, Rwanda and Burundi are also said to be shifting some of their cargo business to Tanzanian ports fearing disruption on the northern corridor route.
It is worth noting that the higher activity in the stock market is mainly being driven by local investors, who are showing renewed optimism after absorbing a two-year bear run.
Foreign investors have been selling off shares in the past two months, indicating their cautious approach to Kenyan elections.
NSE turnover rose to Sh21.3 billion in July, up from Sh17.1 billion in June and Sh16.3 billion in May, showing a steady rise in activity as the election draws closer.
Analysts said local investors were likely to stick with the market even when there is political risk because they understand the terrain better than their foreign counterparts.
“If it was foreigners buying or pumping up the market, we would be more worried as they would quickly disappear at the slightest hint of trouble,” said NIC Securities head of research Timothy Wambu.
PAYE Tax Calculator
Note: The results are not exact but very close to the actual.
