Fear of recession could trigger high foreign investor flight, a move likely to erode Kenya's stock market and further hurt the shilling.
This is according to the Standard Chartered Bank’s global market outlook which says this will erode economic growth in emerging markets like Kenya which was poised to grow by 6.2 per cent in the current financial year.
It projects Kenya's economy to grow by 5.0 per cent this year.
Foreign investors have been dominating the Kenyan bourse, accounting for about 58 per cent of the equities transactions in the first half of 2022.
Recession fears are largely fuelled by the rising inflation being witnessed globally, specifically in the benchmark US economy whose inflation levels hit a forty year high of 9.1 per cent last year.
“With the consequent US Fed rate hikes in efforts to tame the runaway inflation, and with further hike projections, the looming recession could lead to a decline in global economic activity impacting all frontier economies,” says the report.
The outlook notes that further interest rate hikes will keep stretching the inflation levels in the developed economies and in turn impact the developing nations.
The spillover effect is evident, the developing countries have seen inflation levels rise above their statutory requirements that have since triggered tightening of monetary and fiscal policies.
In Kenya, the inflation rate hit a seven-year high of 9.5 per cent last November, according to data by the Kenya National Bureau of Statistics (KNBS).
However, this is projected to start easing this year heading towards the statutory required level of 7.5 per cent.
The shilling has also been weakening against the US dollar. So far this year, the Kenyan Shilling has shed about eight per cent of its value against the US dollar.
Yesterday, the Central Bank of Kenya (CBK) quoted the shilling at a mean exchange rate of 124.12 to the dollar.
This has put traders in a tight position, limiting their import power amid shrinking forex reserves.
A weaker shilling forces importers to spend more on goods such as petroleum products and raw materials.
This leads to lower yields on the products forcing manufacturers to pass on the extra cost to consumers.
This is a concern to most investors who often go for much vibrant markets in hope for better yields.
