NSE Update: uncertain search for the floor

The NSE has the feel of someone trying to touch the floor of a 4m deep swimming pool. While shares are still showing strong fundamnetals for 2008, longer-term investors are now turning their focusing to 2009 and beyond. And it doesn't too pretty if one looks at the economy:

• The weight of the budget deficit is now starting to tell and I expect rates to go up slowly if only because CBK is being cautious with t-bill issuance.


• Higher rates mean higher repayments mean higher loan default rate.


• Inflation is not going to come down below 20% before Q1 and only if concerted eforts are made to tackle it. Means reduced investor wallet.


• Diaspora


• Oil companies are showing usual sticky pattern in reducing fuel prices which keeps manufacturers and others expensing higher

And ofcourse western markets haven't hit bottom yet. They'll do this when we get quicker action on assets. 2ndly, GM and other US motor companies are now on the cliff edge. Honda is feeling the effects.

Bottomline: I still expect the NSE to touch October bottoms before we close 2008.

PS: From last week, Safcom announced worse than expected results for H1 with previously unexpected hits from loan (gave an fx gain but it could be an fx loss another day). Total finally got some bucks from KRA which helped double H1 profits while Marshalls' went the other way.

Marshalls, City Finance, Interest Rates

Marshalls (of the Ketan Somaia and K Pattni-fame), went up 30% yesterday. I am assuming this was the usual pricing errors that the NSE is prone to, because I know there is a 10% daily limit on price rises.

Two stories in the BDA (best addition in the market by far this year), caught my eyee. The City Finance takeover by Baraka Fund. Hopefully they'll be able to do as good a turnaround as that done by James Mwangi at Equity
and TC at EA Cables. One wishes we had more of these Kenyan funds or TC-type ventures prepared to go risk venturing into non-performing firms that have the potential. Because what usually happens is the firm end having to go to some foreign banks 
or firms for the cash.  The CEO of the Fund had the same position at NSE and was a corporate director at BBK before then. He also part-owns Asbhu Securities which again has enjoyed a turnaround of sorts.

The on-going spat about who is to blame for the lack of corporate bonds in the market is unnecessary, investors go where the returns are. 3 things are also missing. An independent CBK to work on monetary policy (move the 
regulatory arm to KFSA), "headline" recognised and agreed interest rate and stable monetary policy over a period of 5-10 years.  Until and unless interest rates stabilise to within a particular range, it will always be difficult to do fixed paper (preferable for most corporates) and that in turn means investors don't want to go expecting 15% and end up with 8% within a few years.