The news that the Federal Reserve will refrain from raising interest rates anytime soon has boosted risk appetite in emerging markets stock which opened the year on a losing streak.
NSE has already shed 6 per cent this year, and the lower growth will only be limited to the first quarter with the index likely to pick up in the second quarter and extend to the rest of the year.
There is optimism that stock prices will pick up in the second quarter of this year because the valuations are solid. It is true that there is risk averseness globally for emerging markets but that will change,
The US Federal Reserve raised its rate for the first time in almost a decade on December 16 increasing the benchmark lending rate from 0.25 per cent to 0.5 per cent. Speculations were live that emerging markets would face huge capital outflows as money trickled back to the stable economy.
The bear run at the Nairobi bourse last year was also caused by poor performance in listed companies with 16 firms issuing profit warnings to date.
Liberty Kenya Holding, TPS Eastern Africa, BOC Gases, East African Cables, Standard Group, Uchumi Supermarkets, Standard Chartered Bank, Mumias Sugar, Express Kenya, are some of the companies that expect losses for last year.
This is however expected to change given a promising outlook for 2016, predicated upon a more stable financial environment.
Company performance across a good number of medium and small companies was dismal in 2015, but we see a modest recovery in earnings growth in 2016,companies with little debt or stable cash position will be better positioned to survive in a high interest environment, or even acquire struggling competitors.
Kenya may also benefit from woes in Nigeria whose growth projections for 2015 were slashed to 3.25 per cent by the International Monetary Fund (IMF) as foreign investors flee a weakening economy and to avoid losses from a currency devaluation.
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Theuri Paul
Investment Analyst
Note; The author’s article does not necessarily represent The Kenyan Wall Street’s views.
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