Analysts are painting buoyant prospects for the Nairobi Securities Exchange this year.
The experts say news that the Federal Reserve will refrain from raising interest rates anytime soon has boosted risk appetite in emerging markets stock which opened the year on a losing streak.
NSE has already shed 6 per cent this year, and analysts say the lower growth will only be limited to the first quarter with the index likely to pick up in the second quarter and extend to the rest of the year.
News of the bourse rebound is music to the ears of investors who faced a bear run last year.
The stock market edged up marginally for the first time last week gaining 0.69 per cent in the fourth week of trading.
“There is optimism that stock prices will pick up in the second quarter of this year because the valuations are solid. It is true that there is risk averseness globally for emerging markets but that will change,” CfC Stanbic Bank regional economist, Jibran Qureishi said.
The US Federal Reserve raised its rate for the first time in almost a decade on December 16 increasing the benchmark lending rate from 0.25 per cent to 0.5 per cent. Economists had warned that emerging markets would face huge capital outflows as money trickled back to the stable economy. The dollar which has wreaked havoc against other currencies last year was also predicted to strengthen further.
However, the Fed communication last week indicated a change in their outlook for the economy this year, and possibly a slower pace of interest rate increases.
Provide a breather
“It should provide a breather for emerging market economies such as Kenya when borrowing — even though this is limited — as international investors have already priced in an increase in the FED rate through higher yields on many sovereign bonds,” Standard Investment Bank Researcher Eric Musau said.
The bear run at the Nairobi bourse last year was also caused by poor performance in listed companies with 17 firms issuing profit warnings to date.
Liberty Kenya Holding, TPS Eastern Africa, BOC Gases, Crown Paints, East African Cables, Standard Group, Uchumi Supermarkets, Standard Chartered Bank, Mumias Sugar, Express Kenya, are some of the companies that expect losses for last year.
This is however expected to change given a promising outlook for 2016, predicated upon a more stable financial environment.
“Company performance across a good number of medium and small companies was dismal in 2015, but we see a modest recovery in earnings growth in 2016,” Mr Musau said.
Mr Musau said companies with little debt or stable cash position will be better positioned to survive in a high interest environment, or even acquire struggling competitors.
Kenya may also benefit from woes in Nigeria whose growth projections for 2015 were slashed to 3.25 per cent by the International Monetary Fund (IMF) as foreign investors flee a weakening economy and to avoid losses from a currency devaluation.
The value of trading in Nigerian stocks fell to $860 million while the turnover on the main index in Kenya climbed to $411 million in the final three months of 2015, according to Bloomberg.
However analysts say Nigeria is still Africa’s largest economy with immense opportunities beyond oil and gas, that will likely see more investors targeting various sectors, especially as the new government continues to carry out reforms and fight corruption.