, NAIROBI, Kenya Jan 13 – Cytonn Asset Managers released their 2020 Macroeconomic Outlook Monday, projecting 2020 GDP Growth to come in at 5.6% to 5.8%, inflation to an average of 5.2% for the year.
They also projected that the Kenya Shilling will remain stable and range-bound, between Sh101.0 and Sh104.0.
“Cytonn Asset Managers remains positive on the equities market performance in 2019, driven by higher growth in corporate earnings, while advising investors to remain biased to short-term fixed income instruments given the possible upward pressure on interest rates as the Kenyan Government manages debt sustainability,” the report states.
For the Kenyan economy, they said, “our outlook for 2020 is NEUTRAL on GDP Growth.”
“We project economic growth to come in at 5.6% – 5.8% in 2020, supported by the improved private sector credit growth, and expectations of a recovery of the agriculture sector,” said David Gitau, Investment Analyst at Cytonn.
“The government’s strategy around fiscal consolidation, in an effort to reduce the fiscal deficit, may affect economic growth, due to reduced government spending and existing concerns on the sustainability of growth in some of the major sectors, which recorded subdued performance in 2019.
Key risks to growth remain worries about Kenya’s debt sustainability, and the revenue collection capacity by the Kenya Revenue Authority against its Budgetary targets” he added.
Below is a Summary of the 2020 Markets Outlook:
GDP Growth – Our outlook for 2020 is NEUTRAL on GDP Growth. We project economic growth to come in at 5.6% – 5.8% in 2020, supported by the improved private sector credit growth, and expectations of a recovery of the agriculture sector. Risks to growth, however, lie in some of the major sectors which recorded subdued performance in 2019 such as the agricultural sector due to erratic weather patterns, manufacturing sector, and taxes on products,
Inflation – Our outlook for 2020 is POSITIVE on Inflation. We expect muted inflationary pressures and the inflation rate to average 5.2% over 2020, which is within the government target range of 2.5% – 7.5%,
Currency – Our outlook for 2020 is NEUTRAL on Currency. We project the Kenya Shilling will range between Kshs 101.0 and Kshs 104.0 against the USD in 2020, supported by the Central Bank of Kenya (CBK) in the short term through its sufficient reserves of USD 8.8 bn and an improving current account position,
Interest Rates – Our outlook for 2020 is NEUTRAL on Interest Rates. Despite our expectations of a bias towards expansionary monetary policy in 2020 in order to support economic activity, we still expect upward pressure on interest rates due to increased efforts by the Kenyan Government to meet its domestic borrowing target in order to plug in the fiscal deficit.
Fixed Income, Equities and Private Equity Outlook for 2020
Our view is that investors should be biased towards SHORT-TERM FIXED INCOME INSTRUMENTS to reduce duration risk. We expect upward pressure on interest rates following the repeal of the interest rate cap which in effect is expected to result in increased competition for bank funds from both the private and public sectors as the Government tries to raise funds to plug in the budget deficit
We are POSITIVE for equities in 2020. We expect a stable macro-economic environment, a 12.4% growth in corporate earnings, and attractive valuations in many of the counters to support positive performance in the equities market in 2020.