Kenya’s Biggest Investor Expects Equity Market to Rebound in Second Half

Bloomberg as of 16.08.2011, reporter: Sarah McGregor, editor: Andrew J. Barden

Kenyan stocks, sub-Saharan Africa’s worst performers this year, may rise in the second half as a drought eases and the nation meets constitutional deadlines, according to the National Social Security Fund, the biggest domestic investor.

The Nairobi Stock Exchange All-Share Index has declined 19 percent in local-currency terms this year, paring 2010’s 34 percent increase. Inflation at more than triple the central bank’s target has driven investors to protect capital through buying government bonds, with yields at a nine-year high. The shilling sunk to a record low to the dollar this month as the country was forced to raise food imports amid drought.

“It’s only going to be a marginal recovery, maybe 2 percent above what the measure was at the start of the year,” Alex Kazongo, managing trustee of the state-run company, said in an interview yesterday in the capital, Nairobi. “The country is getting on top of the drought situation and there is a sense of stability in the passing of bills and appointments that had been pending under the new constitution.”

The government projects economic growth will slow in 2011 for the first time in three years to 5.3 percent, because of dry weather that cut agricultural yields in the world’s largest exporter of black tea.

Delays in filling key government posts, which had threatened to derail implementation of a constitution enacted a year ago, appear to be letting up, giving investors a greater sense of “certainty,” Kazongo said.

Shilling Decline

The shilling headed for the highest close in a week, gaining 0.5 percent to 92.74 per dollar by 1:43 p.m. in Nairobi, paring its losses so far this year to 13 percent. On Aug. 9, the currency depreciated to 95.10, its weakest level since March 1994, when currency controls were eliminated.

NSSF aims to raise the assets under its management by at least 10 percent annually as it increases enrolment to 5 million people, from about 1.2 active members now, over the next four years by signing up workers from companies that have five or fewer employees, he said.

The fund’s investments comprise 40 billion shillings in equity, representing about 4 percent of the Nairobi Stock Exchange’s total value, 26 billion in fixed-income securities, and the balance in property, Kazongo said.

Bank Investments

The company will probably try to retain its status as the biggest shareholder in some financial and industrial companies that include National Bank of Kenya Ltd. (NBKL) at 34.32 percent and East African Portland Cement Ltd. at 27 percent, according to data compiled by Bloomberg.

It may also buy stakes in agricultural companies such as Sasini Ltd. (STCL), a Kenyan coffee grower, and Williamson Tea Kenya Ltd., a producer of the leaves, as commodity prices rise, he said.

The fund, which has 110 billion shillings in assets, said on Aug. 11 it had hired six companies including Old Mutual Plc and Co-op Trust Investment Services to boost returns on investments as part of efforts to improve its image from being one of the country’s most corrupt institutions, Kazongo said.

The NSSF was last year removed from Transparency International’s East Africa Bribery Index, a measure of perceived public sector corruption.

“The public now perceives us as serious people who are mandated to invest their savings,” Kazongo said.

The company is seeking state approval to increase the annual rate of return to 7.5 percent from 5 percent now, he said. Upon retirement, members receive a lump-sum payment, which has averaged about 80,000 shillings over the last few years, “far too little a cushion,” Kazongo said.

The contribution by each member is 400 shillings a month, of which the employer must pay half.