'We now have near-zero exposure to Kenyan equities' - Nabo Capital CIO
Damitha Pathmalal's cautious tone highlights the significance of the macro challenges facing the Kenyan market.
NAIROBI, KENYA - Nabo Capital, a boutique Kenyan investment firm, has significantly reduced its exposure to Kenyan equities. That’s according to the company’s Chief Investment Officer Damitha Pathmalal.
Nabo Capital, a subsidiary of Centum, East Africa’s largest investment firm, started to reduce its exposure around 2020-2021 when the macroeconomic picture for Kenya started to become increasingly precarious.
"I peered into the tea leaves so to speak and looked at where the economic fundamentals were going. It was then that we decided to de-risk from Kenya,” Pathmalal said in an interview with Capital Markets Africa. “In terms of equities, we now have near-zero Kenyan exposure.”
In a March 2023 report, the Economist Intelligence Unit noted that although Kenya’s public debt burden “[is] not excessive in a peer group context,” the structure of its external debt means servicing costs are relatively high. It further observed that “external debt pressures climbed in 2022 as stringent US monetary tightening and the Russia-Ukraine war led to a spike in yields on Kenya’s six active eurobonds, worth US$7.1bn in total.”
Since then, all of this has put significant pressure on the country’s US dollar reserves and the Kenyan shilling, which lost 21% of its value in 2023.
Pathmalal leveraged Nabo Capital’s pan-African mandate by reallocating those funds to other African markets such as the Bourse Régionale des Valeurs Mobilières (BRVM), Uganda, and Egypt. “[Our approach is] more about seeing which geographies have the right tailwinds coupled with the best securities to take advantage of those tailwinds. So even if a sovereign like Egypt is facing more severe economic pressure than Kenya, there might be opportunities within it. It's more about getting to that individual security.”
A new report by Sanlam Investments East Africa Limited notes the same point about individual securities, but for the Kenyan market. “As global interest rates subside, we expect quality names to draw investor interest at these discounted valuations,” it notes.
However, the report still strikes a cautious tone similar to Pathmalal's on the outlook for 2024. “Investors will [likely] remain cautious of risk assets against the backdrop of prevailing high interest rates. Currency and inflationary pressures remain as key challenges for capital assets. Fiscal concerns on debt sustainability as well as repayment of upcoming maturities will be key themes in the wake of higher global rates.”
The full interview with Damitha Pathmalal is available for you to read.
© Capital Markets Africa, 2024
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