Kenya in Crisis: A Buying Opportunity?

Posted January 3, 2008

"Despite the recent riots, Kenya has one of the strongest and most stable governments in sub-Saharan Africa. Granted, that's not saying a whole lot, but government opposition has been almost completely nonviolent until now. And with the relative safety of that stability and the healthy financial base left by British rule, the Kenyan economy has flourished." — Stephanie Grimmett.

by Stephanie Grimmett

Baltimore —(TFN): I've been watching the Nairobi Stock Exchange for a while now. And the current political unrest may give us the entry point I've been after.

Despite the recent riots, Kenya has one of the strongest and most stable governments in sub-Saharan Africa. Granted, that's not saying a whole lot, but government opposition has been almost completely nonviolent until now. And with the relative safety of that stability and the healthy financial base left by British rule, the Kenyan economy has flourished.

The Nairobi Stock Exchange is tiny, I'll grant you that. It just moved from paper to an electronic system… and I'm sure you're thinking, "how quant."

But with economic growth reaching an estimated 6.7% in 2007, the exchange could provide healthy profits to anyone who has the fortitude and knows where to put his money. Kenya has an English-speaking population and an abundance of natural resources, and the country is investing in technology and infrastructure way before its neighbors.

The country has been pushing its call-center industry. As India moves from simple outsourcing, like help desks and telemarketing, to complex, like accounting and software development, Kenya is trying to take its place in the minds and hearts of Western business. And the recent riots, terrible as they were, are providing a good entry point for those of you wanting to jump into a vibrant emerging market before everyone else gets there.

On news of the riots, the Nairobi Stock Exchange-20 Index fell 5.1%. Barclays Bank of Kenya, the country's largest lender, fell 6.3%, and Kenya's biggest sugarcane grower Mumias Sugar Company tumbled 8%.

But almost all of the selling going on in recent days was from individual retail investors. These investors jerked back on the news of the deadly riots. But they have a history of cashing out stocks in January anyway.

The Nairobi exchange is small enough to feel the effects of a new semester each January, when investors pull out funds to pay for school fees. And a dip in value in January, although not as sharp as this one, is as normal and expected as the summer slump in U.S. markets.

With individual investors pulling out their money, the turning point will be on the exchange's institutional investors. But those investors aren't playing until January 7, when the companies return to business after the holidays. So far bets are that these investors will see the dip as a chance to buy, not a reason to bail out.

Along with the market sag, the Kenyan shilling has fallen 7.8% agaist the dollar, meaning investments in the country are even cheaper right now.

I'm going to give the institutional investors a chance to make their plays on Monday, but we may have a few good Kenyan investment opportunities for you if you're looking to move your money out of the dollar and want the chance to enter an emerging market before the rest of the crowd gets there.

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