Kenya: NSE avoids mass sell-off amid political uncertainty

The Nairobi Stock Exchange remains resilient despite the political uncertainty gripping Kenya in the aftermath of the opposition's rejection of the presidential election results. On a day when a third of stocks edged higher, the NSE market capitalization rose by Ksh2.7 billion to close trading at Ksh2.3 trillion. Alykhan Satchu, the CEO of Rich Management, shared his insights on the current market dynamics and the potential risks that investors should be wary of. Satchu emphasized the importance of looking at the broader macroeconomic issues affecting the NSE. He pointed out that SafariCom, a key player in the market, has seen a recovery of about 30% from its lows, which has contributed to the overall positive performance of the exchange. However, he highlighted that the NSE 20 index, which reflects the performance of the underlying companies at the NSE, remains at multi-year lows. Satchu suggested that the direction of the NSE will be influenced by the new administration and their policies towards the capital markets. One of the significant concerns raised by Satchu was the banking sector's exposure to Kenya government securities. He noted that recent results from banks like INM and Standard Chartered indicated potential market losses due to their holdings in government securities. Satchu warned of a possible asymmetric move in interest rates, which could impact bond prices and create a negative feedback loop for banks and insurance companies heavily invested in these assets. When discussing the performance of specific companies like Stanchart, Satchu highlighted their solid financial results amidst a volatile environment. He noted that while these banks have historically benefited from lending to the government, the current trade might not be as lucrative moving forward. Satchu also mentioned the potential risks associated with insurance companies' overinvestment in government securities, citing the negative feedback loop that could arise from a downgrade in Kenya's credit rating. The conversation then shifted to government bond issuances, which have seen low appetite despite declining yields. Satchu interpreted the under-subscription of recent bond offerings as a warning sign for the pricing of government securities. He cautioned that the government might be forced to adjust prices to attract investors, leading to potential adjustments in banks' and insurance companies' bond portfolios. In conclusion, Satchu urged investors to remain vigilant and closely monitor market trends, especially in light of the political uncertainty and potential risks associated with government securities. He emphasized the need for a strategic approach to investment amid evolving market conditions and policy changes that could impact the NSE's future performance.