Despite the events over the last three days or so regarding starvation in Northern Kenya, the inflation figures released today suggest that this is as a result of high food prices and fuel costs. The inflation has increased for the ninth straight month in July, bringing renewed pressure on the Central bank to tighten its monetary policy. Inflation may slow to between 8 percent and 9 percent by the end of the year if the central bank raises rates, while failure to tighten monetary policy may keep the inflation rate above 12 percent. Issues such as the Power rationing that began July 27 may last as long as three months threatening to worsen the inflation outlook and undermine economic growth.
The Kenyan shilling was steady against the dollar but was expected to be pressured by importers' demand for dollars in the coming days, while stocks edged up from near a 17-month low.
The Nairobi Stock Exchange
The equity market continues to exhibit negative sentiments driven rising inflation. This rise is likely to culminate in increasing risk for listed companies as consumer’s purchasing power falls as input costs rise. On the broader scale, the NSE 20 Share Index is expected to continue its downward spiral going into 2012. It is noteworthy that as Kenya grapples with the effects of inadequate rainfall, hydroelectric power supply still remains below expectations exerting more pressure on the demand for oil. This spells a very negative signal on the economy.
- NSE 20 Share Index: up 0.14 percent to 3,738.46
- NASI: down 0.39 percent to 84.32
Week on week, the NSE posted an upward trend in prices but a decrease in overall traded volumes. An upward price adjustment is likely in the coming week as investors take advantage of the previous week’s losses. To watch this week is the Financial Sector as the reporting season for Banks sets in. To start this off will be the results for Kenya Commercial Bank () released late last week and its desired effect on share prices.
Pan African Insurance Company () joined the gainers list up 5.79 percent to close at Kshs.32 while British American Tobacco () closed at Kshs 263, a rise of 4.65 percent. Uchumi supermarket () closed at a Kshs. 9.60 a fall of about 4.48 percent.
I maintain a cautious take on the Kenya Shilling as the results of inflation will continue to have a biting effect on the economy.
Kenya Power and Lighting Ltd ()
Three factors majorly contribute to its medium term prospects:
- Higher allocation in the government budget for the Rural Electrification Program which will consequently boost its customer numbers impacting on its earnings.
- The installation of prepaid meters which has increased efficiency and greatly cut costs
- Further, the revenue diversification into fiber optic a major boost to the bottom line.
- The Three months power cut phase targeting major improvements of the power distribution in the country.
The company is currently one of the big movers with an increased volume take of up to 370,000 shares. An Uptake on the counter is likely to increase before the announcement of results. Current shares trading above Kshs 19.50
Kenya Commercial Bank Ltd
- Results for the first half released late July.
- Its upward momentum set to remain going forward as the firm cashes in on its regional presence
- Counter gained 1.25 percent to close at Kshs. 23 during the previous week.
- Increased growth in lending in retail, mortgage and corporate segments.
- Able to realize a 35% growth in net loans and advances from Kshs 130billion to Kshs 175billion, while deposits grew by 12% to reach Kshs 216billion from Kshs 192 billion over the same period.
Pan African Insurance Holdings
- Introduction of two new product ranges: Flexi-life and Umash Funeral Benefit is an indication of the company’s growing confidence in the Insurance industry.
- Counter gained 1.75 percent increase to close at Kshs. 32
To Watch - Week of August 1, 2011
KCB, Barclays () , KPLC, Equity Bank () , Kenol-Kobil () , Diamond Trust ()
Corporate Finance and Wealth Planners