14 January 2013

Kenya: The Sweetest of Sweet Spots

"Water is fluid, soft, and yielding. But water will wear away rock, which is rigid and cannot yield. As a rule, whatever is fluid, soft, and yielding will overcome whatever is rigid and hard. This is another paradox: what is soft is strong." -- Lao Tzu

A sweet spot is surely when your personal powers of attraction and co-option are so strong that you bend the universe to your will without even trying, when you create serendipity at every opportunity.

As a trader or an investor, a sweet spot is when you see the markets clearly, it becomes like Deja Vu. It is as if the tape you are watching is one you can predict with 100% accuracy.

The markets have started 2013 in a sweet spot. Chinese December exports surged +14.1% year on year [versus a consensus Expectation of +4.6] with imports expanding +6.0%.

That the equivalent of hitting a 6 clean out of the ground. In Europe, the always suave and compelling Super Mario Draghi spoke of a positive contagion and reduced 'fragmentation' in Europe.

In Japan, Shinzo Abe and his helicopter strategy for the Yen [Ben Bernanke was once known as Helicopter Ben because in his university thesis he once proposed that in extremes, you might drop money from the sky [manna from heaven] in order to kickstart an economy in paralysis] has already delivered a bull market in the topix and the Nikkei 225.

The US S and P Index is at a 5 year high. Emerging-market equity funds recorded their biggest-ever weekly inflows and attracted a net $7.4b in the week ended January 9. This is indeed a rising tide.

Here on the African continent, Egypt has rallied +5.35, Nigeria is +4.00%, South Africa +2.63% [and has had to weather a FITCH Ratings

Downgrade to BBB] but off all The African Indices, it is the Nairobi All Share which has started with the biggest bang. The Nairobi All Share is +7.14% in 2013 and closed at a 24 month on Friday. Athi River Mining which split its stock 5 for 1 has rallied 25.56% since the start of the year and is at a record. Kenya Commercial Bank is +10.084%, EABL is +10.9433%, BAT is +7.94% and they all have closed at record highs. Safaricom traded at 6.00 on Wednesday a level not seen since August 2010, before some light sized profit taking saw the price retreat to close at 5.60 but still +10.891% so far in 2013.

ScanGroup is within a whisker of an all time high. The Central Bank cut the CBR into single digits last week in another show of confidence that the macro economy has stabilised.

Last year I wrote that a tsunami of cash might well wash up on our shores. And I believe the tide started rising last year and has continued to gain traction since then.

Local investors have been fighting the tape for quite a while now and this can be seen in the sharp uptick in foreign Investors percentage holdings in our big cap counters.

Its really very dramatic. I do not think our local shareholders have enough skin in the game. They cannot sell much more otherwise their underperformance is going to be woeful. I mean woeful. Therefore, This rally might well gather speed and not slow down.

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