Expect slower GDP growth, further shrink in private sector expansion & lower yields for equities – Genghis

Genghis Capital projects a slower growth in 2017 owing to the general election jitters, prolonged drought and the after effects of the interest rates cap legislation. Kenya’s economy is expected to expand by between 4.75% and 5.25% in 2017 with Agriculture, Manufacturing & Transport emerging as the top three largest contributors of growth.

“Our projections are lower than the 2016 GDP growth estimates mainly weighed down by protracted drought, a slowdown in the private credit sector growth and uncertainties relating to the August elections,” said Elizabeth Wangechi, Head of Research, Genghis Capital during the launch in Nairobi.

The economy expanded by 5.70% in 3Q16; a slight dip from the 6.00% recorded in 3Q15. The retreat was due to stunted growth within Agricultural, Manufacturing, Real Estate and Construction sectors.

Annual private sector credit growth dipped to 4.30% as at December 2016 from 21.20% registered in July 2015. The drop was due to private sector crowding out effect in 3Q15 due to increased borrowing by the government.

According to Genghis Capital CEO, Geoffrey Gangla the revenue collection in the next financial year targeted at KES 1.70Tn (20.6% of forecast GDP); to be fuelled by KES 1.55Tn (18.7% of GDP) in ordinary revenues is ambitious.

“The current financial year’s half year data already shows a lagged collection – KES 591.17Bn vs pro-rated KES 666.02Bn total tax income,” he pointed out.

He added that the increased financing risks at the proposed KES 328.89Bn domestic borrowing exceeds the 60:40, external: domestic borrowing ratio (as approved under the Medium Term Debt Management Strategy).

The report further highlights growth in different markets including Sub Saharan Africa, emerging markets and global markets as follows:

Sub Saharan Africa: GDP projections in the Sub Saharan region is forecast to rebound in 2017 and record a 2.90% growth from an estimated 1.40% growth last year. This projection is pegged on economic prospects of the region’s oil commodity producers and exporters.

Emerging Markets: Growth in the emerging markets and developing economies is projected to show a 4.60% expansion in 2017, up from the projected 4.20% for 2016. The anticipated commodity fortunes coupled with diminishing risk in currency depreciation, is expected to engineer growth in the emerging market segment.

Global Markets: The International Monetary Fund estimates show global growth slowed slightly to 3.10% last year, before rebounding to 3.40% this year. The subdued 2016 growth reflects stagnation in the advanced economies coupled with China’s ongoing economic re-alignment favouring consumption and services. Populism rhetoric re-emerged last year, resulting in the UK Brexit vote and the presidential victory of Donald Trump, which are expected to play out in the course of 2017.

“With the aim to position our trading ideas, we split our Equities portfolio into momentum, growth and income stocks and noted that most companies are trading on the upside against our target market prices. This unfortunately reveals that the stock market is trading behind its Price to Earnings ratio.” Gangla concluded.