Kenya stocks seen boosted by bank cash ratio cut
NAIROBI, Dec 4 (Reuters) - Kenyan stocks should get a boost next year following the central bank's decision to cut a key lending rate and lower cash ratio requirements for banks to free up liquidity, market players said on Thursday.
The Nairobi Stock Exchange's main 20-share index .NSE20 has fallen 42 percent to 3,168 points from its highest point this year of 5,477.70 points in June.
"In the first quarter, the market will start to look up because there will be some easing in liquidity and fund managers will be looking at putting fresh allocations," said Sunil Sanger, general manager at CFC Financial Services.
Kenya's Monetary Policy Committee cut the benchmark CBR by 50 basis points to 8.5 percent on Monday and lowered the cash requirement for banks to 5 percent from 6 percent.
"We expect banks to have excess liquidity and the lowering of the CBR [central bank rate] means banks can borrow at lower rates," said Jimnah Mbaru, chairman of the Dyer & Blair Investment Bank. "The net effect of this is that the stock market is going to pick up."
The Nairobi bourse has followed the global downward trend, but analysts say inflation has also eroded investors' ability to purchase shares and, in some cases, forced them to liquidate portfolios to meet basic needs.
Many shareholders on the Kenyan bourse are retail investors, holding just several hundred shares in a company or two.
Annual inflation has rocketed this year, initially due to food shortages following deadly post election violence, but also thanks to energy costs. The headline rate stood at 29.4 percent in November up from 11.8 percent in the same month last year.
Analysts expect inflation to slow in the coming months, reflecting lower energy costs, and maybe lower food prices after the government said it would import maize to avert a shortage.
The worst hit shares over the past 12 months have been NIC Bank NIC1.NR, Sasini Tea SASN1.NR, Kenya Airways KQNA1.NR, Mumias Sugar MSC1.NR, and Housing Finance HFCK1.NR.
A portfolio manager at AIG Global Investments was less optimistic about the stock market saying the cash ratio cut would give banks much-needed liquidity, but it would take a while before there was a trickle-down effect.
"People will want to hold cash," said AIG's Edward Gitahi. "I don't think banks will be willing to lend just because the cash ratio has come down. They won't be as generous but will be more critical."
Most market watchers, however, said share prices -- which are on average half what they were this time last year -- would look up next year, mainly on institutional investor activity.
"The market will remain weak to the end of this year," Sanger said, adding that the 3,000 point level was a key support for the 20-share index.
"We are approaching a bottoming of the market." (Editing by David Clarke and Simon Jessop)
