Flash Report /
Kenya

Kenya: Coronavirus headwinds present buying opportunity for blue chip stocks

  • Coronavirus concerns have delayed cargo shipments from China, which contributes 21% of Kenya imports

  • This could lead to higher costs for business owners, with inflation risk already elevated due to the locust swarm

  • More downside is likely for the Nairobi stock market, but there could be a buying opportunity for more resilient stocks

Tracy Kivunyu
Tracy Kivunyu

Equity Research Analyst, Telecoms

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Tellimer Research
2 March 2020
Published byTellimer Research

The Kenya Ports Authority (KPA) has stated that eight Chinese cargo shipments that were scheduled to dock at Mombasa Port in January and February failed to do so. The KPA predicts that the downturn in imports from China due to coronavirus concerns will become even clearer in March.

Statistics from Kenya National Bureau of Statistics indicate that China contributes 21% of Kenya's imports. Although affected business owners will attempt to look to other countries for their import needs, there is a risk that they could incur higher costs, which will result in higher prices for consumers.

The chief executive of the Importers and Small Traders Association of Kenya, Sammy Karanja, said that small traders had already lost KES30bn (US$300mn) worth of imports in the past two months. Kenya Airways has also lost cUS$8mn in revenues, after suspending all flights to and from Guangzhou, China, since 31 January. 

According to the Kenya National Chamber of Commerce and Industry, the most affected businesses will be importers of raw materials for manufacturing, clothing and textiles, plastic and other fast-moving goods, sanitary goods, beauty products and electronics.

The locust swarm represents a somewhat bigger risk to inflation than coronavirus given that food has a 36% weight in the consumer prices index, but clothing and footwear contributes a material 7%. We are concerned that the combined effects of coronavirus and the locust invasion could drive inflation over the Central Bank of Kenya's 7.5% target. Inflation inched up to 6.37% in February, from 5.78% in January. 

The Nairobi Stock Exchange All Share Index (NASI) is down 9.5% YTD as a result and downside risk persists. However, there could be a buying opportunity for stocks that are likely to be able to weather these headwinds, such as Safaricom (which recently announced that it is partnering with Amazon Web Services on cloud services), whose role as a provider of essential services in the areas of money transfers/payments and communications technology makes it relatively resilient to these risks.