Kenya has become a target for international fund managers looking for high returns on equities and bonds in emerging markets, says Standard Bank of South Africa.
While only Ksh1.7 billion ($23.6 million) worth of bonds was traded last year, Ksh8.6 billion ($119.4 million) worth have been traded in the first three months of the year, says the Johannesburg-based bank, which offers custody sevices in Nairobi.
“Changes in international trends have seen fund managers move focus from the Far East to outlets in more risky African markets,” writes Stnadrad in a letter to clients. “The trend in Kenya is for buyers to buy bonds nearing maturity in the secondary market at a discount and make a profit upon redeeming them. Kenya has become a target because of no capital gains tax on such proceeds as well as its liberalised foreign-exchange controls. Emerging market fund managers no longer consider foreign-exchange risk as a major problem, as Kenya has managed its exchange rate regime in such a manner as to keep the exchange rate stable and predictable for very long periods. The economy generally earns enough foreign currency to cover its debt and imports and also has a very low debt-to-imports ratio. The demand comes from pension funds and commercial banks who are custodians in the market, e.g Standard Chartered, Barclays Bank, Stanbic Bank and the Credit Finance Corporation. The Central Bank of Kenya enables electronic transactions on government bonds on delivery versus payment and a payment settlement system enables efficient settling.”