Brent
Capital Markets Authority
China
Disqus
Fed
Jerome Powell
Safaricom
Safe
The Nairobi Securities Exchange (NSE)-listed
US
US Fed

The big question is whether to purchase stock or stay put

Given the mixed bag of fortunes during last year, striking a balance in 2019 holds the trick for investors.

The big question is whether to purchase stock or stay put

The Nairobi Securities Exchange (NSE)-listed stocks ended 2018 with a loss of 22 percent—even the most crowded stock (Safaricom) of the bourse cracked 16 percent. The story was much the same across the globe with the vast majority of major indices in the red: The S&P 500 was down seven percent, the FTSE 100, 12.4 percent and the DAX, 18 percent. Crude oil benchmark (Brent) dropped 20 percent in value while the “Safe haven” gold disappointed investors. Most emerging market currencies also weakened as a string of rate hikes by the Fed pushed them lower. An interventionist policy (repo markets) and record remittances pushed the local unit up 1.98 percent in the year.The market volatility is making cash king for now. Foreign investors battered the local equity market with the biggest withdrawals in 2018 and snatched the most cash in years – Sh22.9 billion by September 2018 according to Capital Markets Authority (CMA) data. Coming into the New Year, market unease is expected to remain as more headwinds remain: Brexit uncertainties, further US rate hikes, slowing global economic growth, US-China trade stand-off et cetera. And this could mean two things; another wild year of down trading or an unexpected miracle recovery. Which way to go?Let’s chop a few things. First, the positive. One; though credit growth rate to the Kenyan economy shrunk in the 12 months ending in September 2018—down from 7.7 percent (September 2017) to 5.8 percent (September 2018), credit to the private sector showed signs of growth in the same period. Two; overall inflation growth still remains below five percent and has been for much of 2018 with the exception of October (5.5 percent) and September (5.7 percent). Three; potential for positive news on the US– China trade stand-off remains high. Sentiment has brightened when the US president held a “very good call” with his Chinese counterpart and stated that “big progress” was being made. A quick resolution could provide a glimmer of optimism for markets.Then the negative. One; rising global yields is not a good sign for our ballooning budget deficit that’s half-financed by foreign capital. Two, the US Fed could be stubborn and continue the now three-year journey to normalise policy.At the December news conference, Jerome Powell, the Fed’s chairman, stated definitively that the Fed’s balance sheet downsizing was on “automatic pilot” and that he did not anticipate any changes.If this stance persists, many investors would be left in a lurch further complicating matters for frontier markets such as ours. Three, looking at the markets suggests that the global economy is headed into recession.With this kind of mixed background, finding the balance to navigate the markets will be the greatest challenge ever. Choosing whether to stay on the side-lines or not could be decided by other factors; investment horizon, risk appetite, trading style et cetera.Speaking for self, I’ll be on the buy side. I am hopeful that the good balance between buyers and sellers (since October) has provided a more solid base which potentially could set-up a little bit of upside. Besides, the strong December finish should be viewed as very positive for bulls.

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