How has the Kenyan market performed in 2021 and what should we expect during the upcoming election year of 2022?

Author: Muammar Ismaily – VP & Analyst at EFG Hermes Kenya

During the year 2021, the Kenyan equities market performed relatively well, with NASI, NSE 20 and NSE 25 increasing by 9.43%, 1.83% and 9.62%, respectively. The best performing stocks were Car & General (+54.32%), Equity Group (+44.32%) and BK Group (+41.46%). Notably, Safaricom, which makes up most of the trading volume on the market had a share price change of +10.8%. Banks also performed well, rallying off depressed valuations at the end of 2020. Additionally, yields on government bonds increased slightly with the 91-day, 182-day and 364-day T-bills increasing to 7.0%, 7.6% and 8.5% in 2021 from 6.2%, 6.6% and 7.5% at the end of 2020.

With regards to the economy, the overall annual inflation rate was 5.73%, in December 2021 and the Kenyan shilling depreciated by 3.6% against the USD to close at a USD/KES exchange rate of 113.1 in 2021 (vs 109.2 in FY20). The Kenyan shilling is currently trading at USD/KES 113.5 but given recent increases in the global oil price, the USD Federal Reserve’s intention to stop its QE program in March 2022 and the possible risk of a drought, the shilling could depreciate further. Based on IMF projections, the economy is projected to grow by 6% in 2022 to USD 117 billion driven by continued infrastructure spend, increase in the agricultural commodity prices, increased trade with Tanzania that has a more market-friendly administration and a slow resumption to normal economic activity after disruption from the COVID-19 pandemic.

To conclude on the market outlook, the elections in August 2022 will be a key consideration over the next 7 months, however we remain positive on the market. Recent consolidation sets the market up for further gains going into early 2022, we believe potential drivers include the approval of banks’ risk pricing models, dividend announcements, progress on Safaricom’s roll-out in Ethiopia, progress on IMF reviews and seasonal market strength. All in all, we believe with the increase of global crude oil prices, which are expected to create some inflationary pressure, and the expectation for the government to borrow aggressively from the domestic market that this will increase yields on the government’s securities even further.