Shilling to depreciate in 2024, SIEAL Projects

Nairobi,

Thursday, January 18, 2024

KNA by Michael Omondi

The Kenya Shilling is projected to continue depreciating in 2024 although at a slower pace compared to the 2023 depreciation, that saw the shilling lose 21 percent of its value. This is according to the Sanlam Investments East Africa Limited (SIEAL) 2024 Investment Report.

The Themes and Outlook Report presented by Sanlam’s, Mr. Shritesh Nanji - Chief Investment Officer of investments, and Mr. Dan Gathogo – Deputy Chief Investment Officer in Nairobi, will see an improving global macroeconomic backdrop, as global monetary policy becomes more accommodative in 2024.

“We expect the themes of Geopolitics and Elections, Forex Liquidity, and Fiscal and Monetary Policy Reform, to take center stage in the year,” stated Nanji.

He noted that global equity markets performed strongly with developed equity markets increasing by 21.8 percent and emerging markets by 7 percent in 2023.

Nanji added that Global GDP growth projections for 2024 are expected to be broadly similar to 2023 at 3 percent, with Sub-Saharan Africa growth, expected to pick-up from 3.3 percent to 4.0 percent.

According to the Chief Investment Officer, conditions in Africa are improving with countries receiving additional support from international agencies including the IMF and World Bank.

“We expect the external funding environment to improve, for example, Ivory Coast is looking to issue the first Eurobond in Africa in around two years. Valuations are attractive with equities trading significantly below historic averages. Catalysts to improve returns will include investor confidence in foreign currency availability and fewer concerns regarding African debt sustainability,” stated Nanji.

Mr. Gathogo noted that interest rates on Kenyan government securities, rose sharply in 2023.

According to Gathogo, SIEAL expects interest rates to remain elevated in 2024 driven by the increase of the Central Bank rate in December 2023, the funding requirements of the government, and a lag in tax collection.

“We expect the shilling to depreciate in 2024 but face less pressure than 2023, as the Central Bank of Kenya has increased, interest rates and US interest rates are projected to decline,” he observed.

As uncertainties around Kenya’s repayment of its 2024 Eurobond ease, coupled with less restrictive monetary policy globally, this could see improved sentiment from foreign investors towards Kenyan Equities trading at historically low valuations.

On Real Estate, the continued weakening shilling and higher interest rates could slow construction activities in the medium term, however, rental assets in defensive sectors such as education and health, could still enjoy rental escalation despite inflationary pressures. 

Courtesy; KNA