Financial market investors took a defensive position on Monday as business closed ahead of Tuesday’s General Election, which pits President Uhuru Kenyatta against opposition leader Raila Odinga in a tight race for the country’s top job.
A steep rise in demand for dollars saw the shilling cede ground to the US dollar, while equities and bonds turnover at the Nairobi Securities Exchange (NSE) fell following a plummeting of the number of investors in the market.
Markets remain closed Tuesday for the polls and are expected to resume trading on Wednesday.
On Monday the shilling opened trading weaker, having been quoted at an average of 104 units to the dollar compared to Friday’s closing average of 103.90 units to the greenback.
The Central Bank of Kenya’s (CBK) indicative mean rate for the day was 103.89 units to the dollar, compared to 103.87 on Friday.
Traders said the shilling had come under some pressure from retail buyers and oil importers, who were looking to build a strong dollar position ahead of the polls whose uncertain outcome has bred caution in the markets.
The shilling has since the beginning of the year retained relative stability against the dollar, with the CBK stepping in to sell dollars or mop up liquidity at the slightest hint of volatility.
Analysts said that Monday’s pressure may be an indicator that the shilling might remain vulnerable as long as the election-related political uncertainty remains.
That would force the CBK to dip into its $7.5 billion reserves to support the local currency.
“Today will set a benchmark in the unfolding currency behaviour,” said Kingdom Securities’ fixed income analysts in a note.
At the NSE, turnover on both equities and bonds markets fell relative to last week’s average daily volume, even though share prices stayed on the upward trajectory.
The market’s main index, the NSE 20, closed 42 points higher at 3818. Equities turnover — the value of shares traded — fell to Sh303 million compared to Sh849 million on Friday.
The daily average traded turnover last week stood at Sh1.02 billion.
Bonds turnover also fell below last week’s daily average of Sh1.02 billion to stand at Sh684 million on Monday.
Analysts expected a slow trading day in the wake of a near standstill economic activity as the country headed to the polls, a situation that is likely to persist should there be a dispute over the outcome.
“We see quiet trading with a good number of investors looking to come in upon resumption of relative certainty in the market,” said Genghis Capital in a trading update.
Markets have become more nervous in recent weeks as the presidential race tightened, making it difficult to predict the winner.
Pollsters have not offered any certainty in the matter having released conflicting findings as the campaign period closed.
Infotrak placed Mr Odinga ahead by 49 per cent against Mr Kenyatta’s 48 per cent in their last finding, while Ipsos put the President ahead by 47 per cent against the opposition leader’s 43 per cent.
In the 2013 election, Mr Kenyatta got 6.1 million votes against Mr Odinga’s 5.3 million.
The opposition then challenged the outcome at the Supreme Court, which eventually decided in favour of Mr Kenyatta.
The tight race this time around has brought tension, which has filtered down into the economy, slowing down activity as many business owners adopted a wait-and-see attitude.
Kenyans were also reported to be stockpiling food and other basic necessities through the weekend, indicating the extent of tension around the polls.
A number of people have also travelled back to their rural homes to vote or as a precautionary measure, hoping to be away from the centre of action should there be post-election unrest.
Kenya’s last election in 2013 passed off peacefully, unlike the 2007 one, which was characterised by widespread violence after the incumbent, Mwai Kibaki, was declared the winner and sworn in at night.
The ensuing unrest hit businesses hard, pushing them to adopt a more cautious stance in subsequent polls.