Monday, October 01, 2007

NSE: Recent Trends

The 6% fall last week was driven by the peculiar animal known as the entry of political risk. It has happened before. Between Oct and Dec 2002, the NSE rose 30%. In the UK, the early 90s was characterised by yo-yo movements as the FTSE investors feared a Labour govt getting the seat. Labour was then dimmed to be not very business friendly and always looking to hit population with some extra taxes. Even Clinton was victim to the same when he was first elected in 1992.
At the NSE , any GoK-run or affiliated stocks will likely take a pounding between now and Dec. These either have GoK majority share ownership or GoK has highest shareholding. Those stocks that have foolishly and closely aligned themselves with the current regime will also take a pounding. When one listens to ODM, you don't get a sense of continuity in the economics arena and of course business hates uncertainty in planning.

  1. A typical business needs to do a budget that incorporates certain growth rates aligned to the economic growth rates.
  2. For those dependant on GoK contracts, their will be worst-case scenario analysis, others dependant on continuity e.g. in construction will similarly take a pause.
  3. Banks will invest in treasuries instead of lending and so forth. 
  4. Worst-case scenario, diaspora may also play a wait and see game.
Politicians love making promises, but as I read the other day, they need to stop being surprised when someone expects them to keep these promises. Baba Judy said he'd serve one-term, he may get his wish.

In the meantime, my prediction is that the NSE will change by around 30% by year-end.


Ssembonge said...

30% up or down?

$100 says Equity will be one of the most affected counters should Kibaki lose.

GoK cashflow running through their bank is about to end. So much for political patronage. They should have learnt from BBK and Stanchart how to be apolitical. Banking and politics are not to be mixed.

J K said...

ssembonge, please stop perpetuating these lies about Equity success as being govt driven. This is a popular theme by politicians wishing to demonize the bank because of the tribe of the owners. True, if there is a change in regime, because of investors having similar perceptions like your own, the stock price will be affected in the short term. However the bank's performance shall change in tandem with all the others in the sector

J K said...

MainaT, in both the labour and the Clinton examples you have cited the effects at their respective stock exchanges were mainly perceptions based and as such their price depression was likely to be short lived. At the NSE I do not believe that some of the threats issued by a leading contestant is meant for the fans. With his likely hood of getting elected the NSE shall take a beating beyond our imaginations; the 30% like I said elsewhere is being conservative

MainaT said...

Equity: you are ofcourse both right. Equity is getting hammered already. As for the GoK cashflow running through it, just study their Quarter on Quarter balance sheet and you'll realise how bogus the accussition is. There is one to three banks that really benefit from GoK cashflow, KCB (IPO receiving bank), Stanchart (involved in every GoK fund raising venture) and CooP. As for Eqity, lets assume that their average customer deposits Ksh1,000 per month. Over a year that is KSh14bn alone.
30% drop or rise depending on electoral outcome.

Ssembonge said...

Maina, I thought the youth fund among others are channeled via Equity. And why is Equity's boss actively involved in Kibaki's reelection campaign.

It's such ventures that can cost the bank erosion of public goodwill now that the big banks are going after the small man.

MainaT said...

Its actually a portion of women's fund for which the set up 3 women only branches. Family Finance and several others are also involved in distribution. However, and this is the crucial thing. These funds don't sit with the bank-the IPO funds do. The banks are merely being used as a distribution channels.
Munga is involved in Kibaki's re-election campaign hence my foolish coment on the post itself. As is KenGen's CEO,
However, a lot of Equity's shareprice movement is perception based.