End of bearish run unlikely for Kenyan market

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“For the most part what’s driving the market, especially the bear run for the last week, we’ve seen a bit of foreign investor selling, especially in some of the large caps. East African Breweries was one of the counters taking a hit, and Kenya Commercial Bank as well after it released what we thought were actually good numbers,” Standard Investment Bank research analyst Eric Musau told CNBC Africa on Monday.

“That trend could continue, maybe a bit of profit taking. The next few counters, Mumias Sugar for example, we expect them to report disappointing numbers. So unless they really surprise to the upside, we really don’t expect them to spur.”

Forthcoming results for big market players such as Kenya Electricity Generating Company and Kenya Power are also not expected to provide any shakeup in the market, due to the current legislative restructuring of the county’s power sector.

“It really depends when you combine a bit of that bearish aspect with maybe what politics might be happening. The international crime court cases against the president and the vice president will be very key,”Musau explained.

“Otherwise, I don’t really see anything else which is significant. The market may just hold on where it is.”

The new Value Added Tax (VAT) bill, which was recently passed, is expected to have a significant effect on Kenyan markets in the near future. This is following the country’s 6.67 per cent rise in inflation in the year to August from 6.02 per cent a month earlier.

“The VAT bill has elicited a lot of debate but I think the main push by the government, especially from a business perspective, is really to simplify taxation. Kenya’s been ranking very poorly in terms of the complexity of the tax system,” said Musau.

The VAT bill is expected to reduce the number of exempt items and zero-rated items, enable a much better playing field for businesses and employ a simpler tax return filing system.

Essential food commodities and specific medicines and seeds are in the exemption category, which will be a relief for consumers.

“We’re still going to have an increase in inflation. The overall impact is that a better playing field for an economy would probably be much better, but obviously there’ll be a bit of pain in the initial phase,” he said.