Political Risk Is Now Cooling Down, Economy Upbeat

Lets take stock. No real stock taking can take place without having a look at the political risk. Whilst, I appreciate that the political situation remains fluid and only a bushy tailed and eternal optimist would bet on an optimal outcome, nevertheless you have to admit that the ICC has brought a process to bear on what had become an intractable problem.

Therefore, I would argue that the ICC has had a normative consequence and established a new standard of behaviour. We live in an information age and there is simply no conversation which is not being surveilled. Ryszard Kapuscinski said the following about revolution:

It is authority that provokes revolution....this occurs when a feeling of impunity takes root among the elite: We are allowed anything, we can do anything. This is a delusion, but it rests on a certain rational foundation. For a while it does indeed look as if they can do whatever they want. Scandal after scandal and illegality after illegality go unpunished. The people remain silent...at the same time, they keep a detailed account of the wrongs, which at one particular moment are to be added up. The choice of that moment is the greatest riddle of history.

Kapucinski was referencing the Peacock Throne of Shah Reza Pahlavi of Iran, who gave way to the Ayatollah Ruhollah Khomenei and the Islamic regime, whom the Americans continue to try and wrestle to the ground. 'They keep a detailed account of the wrongs.' The mobile phone and the internet have essentially empowered the crowd and they all have a scorecard. The wise politician needs to be very careful about the words they utter because every utterance is now on the record and time stamped.

Therefore, I for one, think Kenya political risk which was flashing red is now blinking amber. Sure there will be spikes but at a basic level, I believe political risk inflected. The NSE20 is the 3rd best performing index in the world after Egypt and Venezuela. The NSE20 Index has rallied 583 points and is +18.19% so far in 2012. On Friday, the index eased 0.38% off a 12 month closing high. Of course, there have been some spectacular returns with the likes of Uchumi exceeding 100% and Kenya Commercial Bank exceeding 50% in 2012, for example.

The stock market had become way too pessimistic in 2011 and has been rallying from a deeply oversold position. The shilling has traded a tight range of 82.00-86.15 throughout 2012. Compare that to a range of 82.00-107.00 in 2011. In fact, If you compare the Kenya shilling to the likes of the South African rand and the India rupee, the shilling has been rock solid. I appreciate that ultra high interest rates sucked money into the money markets and that we have now embarked on a round of monetary easing and that therefore this brings new complexities.

However, in a world where developed economies keep adding lashings of magic money to the system, I venture we can bring interest rates much lower without impairing the shilling. In Fact, I feel we are poised on the cusp of an aggressive easing cycle. Fuel prices were reduced nearly 8% in one hit this weekend. The inflation rate will be in single digits next month. Month on month inflation was -0.8% last month (Its just under 10% in Khartoum on a month on month basis].

We Learnt this week that “all our 46 oil blocks including the nine in the deep sea are now contracted out'' and that Apache Corp is expected to drill Kenya’s first deep-water oil well in three months. We are running with the bulls.