NSE projects bounce back after August General Election
The Nairobi Securities Exchange (NSE) has
forecast a post-election lift-off to turn around fortunes for a market
currently in the red.
The outlook by the bourse suggests that the
market will hit the bottom before the August 9 General Elections and begin
registering a reversal in year to date losses.
NSE Chief Executive Officer Geoffrey Odundo
expects low stock valuations to not only attract foreign but also local
institutional and retail investors.
“I’m pretty optimistic they (foreign
investors) will return in a stronger way. One, because our markets are
undervalued. What will help the market now is local pension funds, stocks are
reaching all time lows and are much undervalued,” he told Citizen Digital in an
interview on Tuesday.
“Pension funds have long-term liabilities and
can therefore take a longer position. They have also seen the experience in the
past two elections that markets tend to recover after elections because of the
optimism and expectations of a new government.”
Nevertheless, Odundo reckons the next
administration will have to take the carrot approach to bolster market activity
and improve investor sentiment for the NSE’s expected rebound to lift off.
“For the next government to make an impact at
a micro level, there has to be some stimulus. For me, the easiest stimulus is
interest rates. If we are able to control interest rates, all other macros
(macro-economic factors) will respond positively,” added Mr. Odundo.
A combination of global shocks and caution on
the approaching General Election has triggered deep sell-offs especially by
foreign investors so far in 2022 to leave behind a bear market- a market at
least 20 per cent lower than its previous high.
For instance, the Nairobi All Share Index
(NASI), NSE 20 and NSE 25 indexes have posted losses of 27.1 per cent, 15 per
cent and 23.4 per cent respectively as of the end of last week.
Meanwhile, year to date net selling position
by foreign investors stands at Ksh.10.3 billion ($88 million).
The market nevertheless continues to trade
sharply below its historical price to earnings ratio underpinning the
undervaluation to stock prices and presenting the opportunity for entry by new
investors.
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