Kenyans Blames Stock Market Slump on Crisis in U.S.

The Nairobi Stock Exchange (NSE) said Thursday its unprecedented market capitalization slump was a result of the meltdown in the United States and the European capital markets.

NSE chairman James Wangunyu said the market's unprecedented decline had been caused by the massive exit of foreign investors who had bought shares during the Safaricom Initial Public Offer ( IPO) which concluded in June this year.

The gradual decline in the prices of stocks is not a situation peculiar to Kenya. It is a global phenomenon across the financial markets as the world continues to feel the impact of the global recession brought on by the double effects of rising oil prices and inflation, Wangunyu told a media briefing in Nairobi.

The NSE 20-Share Index, a measure of the performance of the 20 top listed firms, has shown a 26.5 percent decline from January to Sept. 17, according to financial markets and asset managers in Old Mutual Kenya. The index stood at 4,291 at close of trading on Sept. 24.

Kenyan President Mwai Kibaki launched a global campaign at the UN General Assembly sitting in New York on Wednesday to urge the oil producing countries to lower the prices, saying it might impact negatively on the global peace and stability.

The Kenyan financial markets is also facing highly volatile trading period, caused by the mass exit of the foreign investors, who brought hot money into the local economy to purchase shares during the Safaricom IPO and later withdrew the funds.

We did not expect that the foreign investors who had bought shares would exit immediately. We thought they would lock in at least five Kenyan shillings (about seven U.S. cents) and take away the profit of 50 percent that the stock provided on listing but they have become speculators, Wangunyu told journalists.

It is emerging that Kenya is likely to be worst effected by the global market meltdown as stock market analysts expect that the crisis in the United States and in Europe was affecting the purchasing power of average citizens in most European capitals.

This directly affects local export produce such as tea, coffee, horticulture, pyrethrum and tourism earnings, which make Kenya the largest economy in Eastern Africa.

NSE chiefs said although plans by the U.S. Treasury to bail out troubled mortgage financial institutions with a 700 billion U. S. dollars buyout package was likely to have profound impacts on the local markets, the NSE was still not certain the full impacts it would have.

The U.S. Treasury has announced its plans to bail out AIG to the tune of 85 billion dollars. AIG's local partner is among the largest insurance companies in Kenya. The company has put out advertisements this week, saying it was adequately capitalized to collapse.

Kenya, which also relies on huge investments from its citizens in the Diaspora, is expected to record further negative effects from the troubled markets in Europe.

The NSE has also suffered from low remittance over the last few months. According to its chairman, the amount of investments coming from foreign inflows has declined from 70 billion shillings to 40 billion shillings over the past few months.

These people (Diaspora) are directly linked to what is happening in the United States. The local stocks have a direct connection with the global market, he emphasized.

Central Bank of Kenya (CBK) Governor Prof. Njuguna Ndung'u has disputed the claims by the NSE chiefs that the local market is adversely affected by the crisis in the European and the U.S. economy. 

Source: CRIEnglish