In the last couple of months we have seen analysts releasing reports ranking Kenya financial markets among the most promising in Africa. Among the reports are; the Barclays Africa Group Financial Markets Index which ranked Kenya position five with a score of 59 per cent ahead of Nigeria and Ghana which for long have been economic giants in Africa. The latest report is that of Citi Group which ranked Kenya in the top three markets that are most attractive among the frontier markets.
Frontier markets are markets of developing countries that are more developed than other developing countries.
“Our own ranking model favors Sri Lanka, Romania and Kenya. We weigh a range of factors in 6 categories (macro growth, imbalances, monetary factors, valuations, earnings momentum and price momentum). Argentina, Morocco and Egypt come out weakest on our model.” Citi Group reports
The report notes that there has been growth in GDP in frontier markets from 3.5 per cent in 2017, it projects that the markets will be at 3.8 per cent this year and 4 per cent in 2019. Kenya’s GDP was at 4.7 percent in 2017 and is projected to grow to 5.3 per cent in 2018 by Focus Economics panelists.
Kenya can improve its GDP by exporting processed products of commodities such as coffee and tea. Growth in GDP results to increase of demand on goods and services in country and hence prices will increase. When demand increases, producers will produce more goods to meet the market demand.
Kenya Commercial Bank (KCB) was among the top five stocks that were singled out to be most promising among in the frontier markets. Other stocks picked were BGEO Group (Georgia), Human soft (Kuwait), IDH (Egypt) and MHP (Ukraine). KCB growth profile is reported to be reasonably strong, and its valuation undemanding.
Citi analysts’ projects a 21 per cent increase of inflows in the frontier markets in 2018. This is likely to attract more investors. Investors interviewed by the analysts confirmed that they have had inflows in 2017 and net outflows of 26 per cent.
Kenya scored well on valuations as well as on earnings momentum; this is despite the headwinds of 2016 Banking Law, proscribing limits on deposit and lending rates, and prolonged electioneering period.
Most analysts hold the opinion that the interest rate cap should be lifted but lifting the cap would make loans expensive and unaffordable. Easing the law is a better alternative than an outright repeal. Banks should diversify their revenue sources and avoid overreliance on deposits for investment.
– By Njeri Murigi