Firm w*rns of tough times ah**d for security markets
Kenya’s security and bond markets face tougher times ahead due to the impending General Election compared to those faced during the electioneering period five years ago, a new report by global financial services corporation EFG Herms says.
The corporation which targets frontier emerging markets reckons that sustained political activity which started almost immediately after the 2017 General Elections is sending jitters across markets, fuelling uncertainties along Kenya’s political path compared to the 2017 General Elections.
“The political picture today explains the greater risk aversion amongst investors,” notes the EFGHermes report, in reference to investors preference for outcomes with less uncertainties.
Churchill Ogutu, an Economist at the IC Group, says the report findings suggests that in the run up to the General Election,“stocks were expected to trade at overvalued prices and as such investors may opt not to invest into stocks but fixed income.”
EFG Herms report says expectations are that the cost of equity in the markets will behave similar to the 2017 pre-election period.
“Current valuation multiples are similar to those in the period leading up to the elections in 2017 – the market traded in a relative tight valuation range from late 2015 until Mar 2017,” the report states.
In 2017, Kenyatta was up for re-election as the head of essentially the same coalition that had won the 2012 elections.
Those elections ended in controversy, with President Uhuru Kenyatta and Deputy President William Ruto being re- elected in Oct 2017 on a Jubilee ticket.
Political handshake
Uhuru and Ruto have since parted ways, with the President showing preference for his hitherto erstwhile political enemy, former Prime Minister Raila Odinga with whom they had an unexpected “political handshake” on March 9, 2018, cooling heightened political temperatures in the country, much to the annoyance of his deputy.
Ruto has also formed his political party, the United Democratic Alliance (UDA) through which he has sustained the election fever in the country.
Though the die has been cast, with Odinga and Ruto considered the two front-runners for president come August, there is a lot of uncertainty about the constitutional powers the new president will command, according to the report.
EFG Herms, the Egyptian-based investment banking firm says in contrast to 2015-17, this time stocks are offering a significant premium over fixed income, suggesting that the market is more apprehensive about the medium term, than it was five years ago.
Gerisshon Ikiara, Senior Economics Lecturer, Institute of Diplomacy and International Studies, University of Nairobi says apart from politics, markets will also be under serious economic pressure uncertainties linked to new Covid-19 variants. “Clearly, we have a very difficult period ahead,” he said.
