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NSE could rally this year despite elections

By By Fredrick Obura | January 31st 2013

By Fredrick Obura

Positive growth is expected at the Nairobi Securities Exchange (NSE) this year, driven primarily by foreign investors with interest in long-term investments.

A quarterly report by PineBridge Investment showed that decreasing levels of inflation, strong financial institutions, positive growth in the economy, and constitutional changes had proved to be attractive to foreigners, who are now willing to invest here.

  “The investors are looking at an improved environment, especially with the political reforms that might lead to a smooth transition of power, and measures taken by the Central Bank to reduce the cost of living,” said PineBridge Investment CEO, Jonathan Stichbury.

Base Rates

“We expect the cost of borrowing to be cheaper in the first half of the year as a result of measures taken by CBK to lower base lending rates. This will activate several activities in the economy to the benefit of NSE.”

The renewed interest in NSE by foreign investors has been seen as a sign of confidence in a market, which witnessed a sharp annual decline of 30.5 per cent in 2011.

After a sharp annual decline in 2011, the NSE staged a dramatic recovery last year to post a 39.4 per cent gain. The general improvement in the macro economic conditions, decline in inflation rate from a high of 19 per cent to lower single digit levels, stabilisation of the exchange rate and the unwinding of tight monetary policy has greatly improved sentiments for equities.

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Last year witnessed a sustained buying interest, particularly from foreign and local institutional investors who increased their equity allocations. Attractive earnings, stock market valuations after the sell off in 2011, and better than expected corporate earnings from the banking, technology and consumer sectors attracted investors to the market.

Holding Ground

“Despite heightened political activity in the run up to the March Polls, the market appears holding ground. This suggests the market could rally if the election is concluded without any major incident. We remain optimistic that equities could outperform in the medium term barring any global or domestic market shocks,” said Edward Gitahi, an Equity analyst at PineBridge Investment

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