The Central Bank of Kenya (CBK) could cut benchmark rate by up to one percent by March next year sending investors to seek better returns in the stock market, Egyptian investment firm EFG Hermes Holding predicts.
The CBK’s Monetary Policy Committee recently cut the Central Bank Rate from nine percent to 8.5 per cent, for the first time since May 2018, weeks after the removal of the rate cap with CBK saying the economy was operating below potential, signalling more cuts.
In the Yearbook 2020, EFG Hermes said CBK’s decision to cut its policy rate by 50 basis points at its final 2019 meeting had added to the positive sentiment after the rate cap repeal, and they believe monetary easing will continue to early 2020.
“Our inflation expectations lead us to think the CBK could cut its policy rate by another 50-100 basis points by the end of first quarter 2020. Local institutions have remained invested in fixed income for most of 2019, but the impact of the rate cap repeal on local rates and monetary easing could force more local institutional money back into equities next year, in our view,” said EFG Hermes.
The Kenya securities market suffered from risk averse foreigners’ selling offs, low corporate earnings and rate cap handicap. This, however, seems to be reversing on anticipation of stronger growth going forward.
EFG Hermes said foreigners made an intermittent return to Kenya in 2019 after strong sell-offs in 2018, and much of 2017.
“Year to date foreign buying was at $9.65 million as of October 2019, and we estimate that foreign portfolio investors own 15 per cent of market cap, still below historical highs of 30 percent,” the firm said.
About 61 percent of Sh577.04 billion insurance assets is being held in government securities with only 6.5 percent in listed equities.
As at June Sh518.4 billion or 41.6 percent of pensions was held in government paper up from Sh423.7 billion with only Sh203.6 billion or 16.3 percent of pension funds in quoted equities down from Sh241.4 billion.
“The asset diversification remained almost similar to the previous periods with most of the asset classes recording minimal increases/decreases.
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