Kenya stocks halt two-week rally, shilling falls
03 November 2011, 18:00
Nairobi - Kenya's benchmark stock index fell on Thursday for the first time in more than two weeks as investors sold shares to book gains on a recent price rally, while the shilling weakened as importers snapped up greenbacks.
The NSE-20 Share Index fell 1.2 percent to 3,497.10 points, halting a rally that had seen it rise 8 percent since Oct 4 after foreign investors returned into riskier assets and bargain hunters bet on upcoming results.
"They really over-stretched these (price) positions and a reversal was around the corner," said George Bodo, an analyst at Apex Africa Capital.
Bank stocks were among the biggest losers during the session, stung by investors exiting after the central bank raised its benchmark lending rate by a record 550 basis points to 16.5 percent earlier this week to curb private lending.
Shares in Barclays Bank led the fall, down 6.57 percent to 13.50 shillings, while Kenya's largest bank by assets, Kenya Commercial Bank , fell 5.16 percent to 17.45 shillings a share.
"Investors are selling most bank stocks because they expect high interest rates to hurt them," said Bodo.
The shilling weakened after oil sector importers took advantage of the currents recent gains to buy dollars, but traders said the central bank's big interest rate increase could
squeeze liquidity in the market helping the shilling firm.
At the close of market, the shilling was quoted at 97.10/40 against the dollar, weaker than Wednesday's close of 96.80/97.20.
"There was a bit of dollar demand today from oil guys. At lower levels the dollar was looking quite attractive to buyers," said a trader at one commercial bank.
Trader said, however, they expected the local currency to gain against the greenback as liquidity tightens further in the market following central bank's aggressive rate increase.
Liquidity was already tight before central bank's record rate rise as the regulator had been mopping up shillings through repurchase agreements.
"The support for the shilling is 98.50. As long as we stay below that we are likely to strengthen further," said a senior trader at another commercial bank.
In fixed income, offshore investors were also expected to take advantage of rising yields in the fixed income primary market, helping support the local currency.
The weighted average yield on Kenya's 182-day Treasury rose to 15.742 percent from 15.364 percent at Wednesday's auction.
On the secondary market activity came to an almost stand still as market players stayed away to re-strategise following the rate rise by central bank.
Bonds worth just 25 million shillings ($258,138) were traded, lower than the 160 million shillings traded on Wednesday and way below 1.49 billion shillings traded on Tuesday, before the rate hike.
"After the MPC meeting activity has ground to a halt. We expect this to continue for the rest of the month," said Sammy Maikweki, a trader at Sterling Investment Bank.
"There is a mismatch in the market. Bids are too high. Some people are asking as much as 35 percent on some papers."