Shares hit 2-year high, shilling holds ground

Kenyan shares extended a two-week rally on Monday to hit a new 25-month high as investors expecting strong full-year corporate results bought stocks ahead of the earnings season.

In the foreign exchange market, the shilling ended steady against the dollar for the fifth straight session.

The NSE-20 share index closed up 0.5 per cent at 4,611.03 points, a level not seen since January 2011.

Shares have soared this year, with the main index jumping 11.5 per cent on expectations of strong company earnings and investor appetite, outweighing concerns over the possibility of violence around the time of national elections on March 4.

The last vote in 2007 unleashed a wave of ethnic bloodletting that badly damaged economic growth after the results were disputed by the then opposition.

This year's share rally has mainly been driven by foreign investors who have been increasing their allocations to Africa on expectations that economies on the continent will continue to enjoy robust economic growth.

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"Optimistic economic outlook due to lower inflation and declining interest rates has continued to outweigh the uncertainties that come with elections," said Ronald Lugalia, an analyst at Afrika Investment Bank.

Kenya Commercial Bank (KCB), the country's biggest bank by assets, jumped 4.2 per cent to Sh37 a share. It hit a new record high of Sh37.50 during the session.

"Investors expect the bank to take advantage of expected higher credit growth in the coming months," Lugalia added, referring to the fall in interest rates.

On the foreign exchange market, the shilling was posted at 87.45/65 per dollar at the 1300 GMT closer, the same level it closed at on Friday. Traders said they expected the shilling to strengthen in coming days due to dollar inflows from foreigners investing in the stock market.

The currency has risen from a one-year low of 87.80/88.00 hit on January 29, trading in the 87.40-87.70 range in the last five sessions on healthy demand for shares ahead of a presidential election in March.

"The shilling could strengthen since foreigners are coming to buy into stocks and the central bank is also supporting it," said John Muli, a trader at African Banking Corporation.

On the money markets, with the central bank keeping a tight rein on shilling liquidity, the weighted interbank lending rate rose to 8.28 percent on Friday, from just under 7.99 per cent on Thursday.

The interbank rate has risen for 18 straight sessions from a low of 5.43 per cent on January 15.

The shilling has lost 1.5 per cent this year due to pressure from importers stocking up on dollars ahead of the elections.

In the debt market, government and corporate bonds worth Sh320 million were traded, down from Sh1.09 billion on Friday.

- Reuters