Stocks market jittery ahead of vote on the proposed law

After a good run in the first six months of this year, the Nairobi Stock Exchange faces yet another test in the August 4 referendum.

With less than two trading weeks to go before the vote on the proposed set of laws, the market is yet to show a strong indication of sway, but analysts say a fallout could harm the market.

Political risk

Currently perceived locally and internationally as a high political risk market, foreign investors are said to be taking a wait-and-see attitude, as the date draws near.

“The bourse has an inherent skew in favour of a ‘Yes’ vote,” says Mr Aly Khan Satchu, an investment analyst and NSE-licensed market date vendor.

The political scene is gathering storm ahead of the referendum, with supporters of either side pitching for a win.

Heated campaigns have rekindled the jitters of the last general elections, when a fallout over presidential votes plunged the country into chaos.

Market analysts say once beaten, investors may develop a shy attitude and bail out of the market on any possible signs of a stalemate.

Mr Isaac Njuguna, an investment analyst at Zimele, says while a ‘Yes’ vote will favour businesses and investors, the real effects of the vote will depend on how rival groups take the results.

Positive gains

“We are unlikely to see a lot of activities at the bourse but after the vote is taken then we shall be in a position to judge. But as things stand now if the proposed constitution goes through then we shall see more activities,” he says.

Over the past six months (January-June), the market has buckled global trends to post positive gains.

According to the PineBridge 27 Share Index, the market rose by 10.9 per cent in the first quarter of 2010.

Similarly the NSE 20 Share Index increased by 6.6 per cent while the market turnover went up by 26 per cent to Sh23.9 billion.

“A smooth process during the referendum should go a long way to assure investors about the democratic process of the country and positively impact equity markets,” says Ms Dipna Shah, an investments analyst with PineBridge Investments.