Why were global markets so turbulent last week?

Summary

In this interview, Andrew Bon, CEO of Kenyon Wall Street, discusses the chaotic global markets with Ronnie Choka, a senior research analyst at AAB AIS Africa. They delve into the impacts of decisions by central banks like the Fed and the Bank of Japan on markets and economies worldwide. The conversation highlights the challenges of inflation, unemployment, and the potential for rate cuts, with a focus on how these global trends could affect Kenya's financial landscape and investment strategies.

Takeaways

• 🌐 Global markets are experiencing high volatility, with major markets from Japan to New York to Germany showing significant declines.
• 📉 The Federal Reserve's decision to retain the benchmark rate has defied expectations of a rate cut, causing bond yields, especially on long-term US treasuries, to decrease.
• 🇬🇧 The Bank of England followed the European Central Bank's lead by lowering their benchmark rate, while the Bank of Japan made a historic move by raising interest rates to combat inflation.
• 📈 The US jobs report came in lower than expected, signaling potential economic slowdown and increasing the likelihood of a recession.
• 🇺🇲 The narrative of a soft landing for the US economy seems elusive, with the Federal Reserve missing the opportunity to lower rates, which could have significant implications for unemployment and business.
• 🇰🇪 The global economic situation impacts Kenya, with local markets seeing accelerated sell-offs and the Kenyan Shilling experiencing fluctuations.
• 📊 Inflation in Kenya is below the midpoint target, suggesting a potential for the Central Bank of Kenya (CBK) to lower rates, which could stimulate economic growth and reduce unemployment.
• 🏦 A potential rate cut by CBK could make borrowing more affordable for businesses and households, potentially leading to increased consumption and investment.
• 💼 The Kenyan government's debt sustainability outlook is stable, with efforts to manage debt positions and reduce the cost of debt through refinancing.
• 📈 The Kenyan Shilling has been one of the world's best-performing currencies, which could be further strengthened by rate cuts in other major economies.
• 📉 Investor strategies should adjust to the current market volatility, focusing on selective diversification and favoring sectors that show growth potential, such as banking and telecommunications.

Q & A

What is the current state of global markets according to the discussion?

The global markets are experiencing high volatility, with many regions including Japan, New York, and Germany seeing significant downturns. This is attributed to various factors such as decisions from central banks and economic indicators like unemployment rates and inflation.

What was the recent decision by the US Federal Reserve that impacted markets?

The US Federal Reserve decided to retain the benchmark rate, which went against market expectations of a rate cut in August. This decision led to a drop in bond yields, especially on long-term US treasuries.

How did the Bank of England respond to the Federal Reserve's decision?

The Bank of England followed the European Central Bank's lead by lowering their benchmark rate by 25 basis points, which was part of a broader trend of central banks adjusting rates in response to economic conditions.

What was the Bank of Japan's decision regarding interest rates and why was it significant?

The Bank of Japan decided to raise interest rates to combat inflationary pressures and exercise some yen control. This move was significant as it was almost unprecedented, given that Japan had maintained near-zero benchmark rates for the past 17 years.

How do carry trades influence global fund managers' investment strategies?

Carry trades involve borrowing in yen to invest in other non-yen assets such as US treasuries, equities, and European equities. The Bank of Japan's decision to raise interest rates affected these strategies, leading to market sell-offs and adjustments in investment approaches.

What economic indicators are signaling a potential recession in the US?

The US jobs report came in lower than expected, and unemployment numbers are starting to rise, which could signal that the US economy is entering a recession. The narrative of a soft landing appears to be elusive.

What is the impact of global market conditions on Kenya's economy?

Given the interconnectedness of the global economy, decisions by central banks have material effects on emerging and frontier markets like Kenya. This includes impacts on Kenya's blue-chip stocks, currency exchange rates, and overall market stability.

What are the expectations for the Central Bank of Kenya's upcoming meeting?

The Central Bank of Kenya may consider lowering the benchmark rate, given the recent global economic trends and the need to stimulate the economy. However, they may also adopt a wait-and-see approach due to the current market uncertainty.

How would a rate cut by the Central Bank of Kenya affect the common man?

A rate cut would enable banks to lower their lending rates, making borrowing more affordable for businesses and households. This could stimulate consumption and investment, potentially leading to economic growth and a decrease in unemployment.

What is the current state of government debt in Kenya and its implications?

Kenya's government debt is a concern, with the country spending over 70% of its revenue on servicing debt. Any decision by the Central Bank of Kenya to cut rates could make it more affordable for the government to manage its debt.

What investment strategy does the guest recommend for clients in the current volatile market?

The guest recommends selective diversification, focusing on breakaway growth sectors while reducing exposure to underperforming sectors. This approach aims to protect and potentially grow investments amidst market volatility.

Outlines

00:00

📉 Global Market Turmoil and Its Impact

Andrew Bon, CEO of Kenyon Wall Street, interviews Ronnie Chok, a senior research analyst at AAB AIS Africa, to discuss the chaotic global markets. They cover the unexpected decision by the US Federal Reserve to retain the benchmark rate, defying rate cut expectations, and the consequent market volatility. The conversation delves into the actions of other central banks, including the Bank of England and the European Central Bank, and the unprecedented move by the Bank of Japan to raise interest rates after 17 years of near-zero levels, affecting global fund managers' carry trades. The US job report's adverse figures and the implications for businesses and consumers are also discussed, hinting at a possible recession.

05:00

🌐 Effects on Kenya and Central Bank Decisions

The discussion shifts to the implications of global financial decisions on Kenya, with Chok explaining how interconnected economies and capital mobility affect local markets. He notes the sell-offs in Kenyan blue-chip stocks and the impact of yen movements on equity markets. Chok anticipates the Central Bank of Kenya (CBK) might adopt a 'wait and see' approach due to market uncertainty, despite the potential for rate cuts influenced by global economic trends. The conversation also touches on the stability of the Kenyan shilling and its performance compared to other currencies.

10:02

💼 Impact of Interest Rate Cuts on the Common Man and Government Debt

Chok outlines the potential effects of a Central Bank of Kenya interest rate cut on the common man, including lower lending rates, stimulated consumption, investment activity, and a possible decrease in unemployment. He also discusses the impact on government debt, suggesting that lower rates could make it more affordable for the government to service its debt, which currently consumes a significant portion of tax revenues. The conversation highlights the challenges of balancing debt sustainability with the need for economic stimulus.

15:04

📈 Medium to Long-Term Outlook for the Kenyan Economy

The conversation explores the medium to long-term outlook for Kenya's economy, focusing on debt sustainability and the government's management of its debt position. Chok mentions the government's successful debt refinancing and the decline in net domestic borrowing targets, despite the need to raise them due to the shelving of finance bills. He also expresses concern over the high subscription rates for short-term T-bills, suggesting a market preference for short-term investments over long-term ones, which could indicate risk aversion among investors.

20:06

🚀 Investment Strategies Amidst Global Volatility

Chok advises on investment strategies in the face of increased market volatility, emphasizing the need for selective diversification and a focus on breakaway growth sectors while reducing exposure to underperforming ones. He points out the banking and telecommunications sectors as areas of interest, with specific mention of Safaricom as an undervalued stock. The advice is based on the expectation of a shift in market conditions, including potential rate cuts and the subsequent reallocation of investment portfolios.

25:06

🌟 Selective Diversification and Sector Performance

The final paragraph discusses the importance of selective diversification, where investors are encouraged to focus on sectors that are performing well, such as banking and telecommunications, while avoiding those that are underperforming, like media and manufacturing. Chok provides specific examples of companies within these sectors and their recent financial performance, suggesting that investors should consider the current business cycle and potential market shifts when making investment decisions.

Keywords

💡Kenyon Wall Street

Kenyon Wall Street appears to be the organization hosting the discussion in the video. It is likely a financial or investment firm, given the context of the conversation about markets and economic analysis. The CEO of Kenyon Wall Street, Andrew Bon, is the one conducting the interview, indicating the company's involvement in providing financial insights and discussions.

💡Macroeconomics

Macroeconomics is the study of the economy as a whole, including topics like inflation, unemployment, and economic growth. In the video, Ronnie Choka, a senior research analyst, discusses macroeconomic factors affecting global markets, such as the decisions of central banks and their impact on interest rates and bond yields.

💡Equities

Equities refer to shares or stocks in a company, which represent ownership and the potential for financial gain through share price appreciation or dividends. The script mentions equities in the context of the East African Financial Services industry and the impact of global economic decisions on their performance.

💡Fixed Income Analysis

Fixed income analysis involves the evaluation of debt instruments, such as bonds, to determine their creditworthiness and potential return on investment. Ronnie Choka's scope of coverage includes this, and the script discusses how global economic shifts, like central bank decisions, affect fixed income securities.

💡Volatility

Volatility in financial markets refers to the degree of variation of prices of securities over time. The video discusses increased market volatility, particularly in the context of global economic uncertainty and the unpredictable actions of central banks.

💡Federal Reserve (Fed)

The Federal Reserve, often referred to as the Fed, is the central banking system of the United States. It plays a crucial role in setting monetary policy, including interest rates, which have a significant impact on financial markets globally. The script mentions the Fed's recent decisions and the market's reaction to them.

💡Interest Rates

Interest rates are the cost of borrowing money and are set by central banks. They are a key tool used to control inflation and stimulate economic growth. The script discusses how changes in interest rates by various central banks, including the Fed, affect global markets.

💡Inflation

Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling. The video mentions inflation as a concern for central banks, with actions such as interest rate adjustments being taken to control it.

💡Unemployment

Unemployment refers to the number of people in an economy who are jobless and seeking employment. The script discusses how economic policies, including interest rates set by central banks, can impact unemployment rates.

💡Carry Trades

Carry trades are investment strategies where an investor borrows money at a low-interest rate in one currency and invests it in another asset that offers a higher return. The script mentions how the low-interest rates in Japan have facilitated carry trades, impacting global markets when the Bank of Japan changes its policy.

💡Recession

A recession is a significant decline in economic activity spread across the economy, lasting more than a few months. The script discusses concerns that the US economy may be entering a recession, as indicated by rising unemployment and other economic indicators.

💡Central Bank of Kenya (CBK)

The Central Bank of Kenya (CBK) is the country's central bank, responsible for setting monetary policy and regulating the financial system. The script anticipates a meeting of the CBK and discusses the potential implications of its decisions on interest rates and the Kenyan economy.

💡Debt Sustainability

Debt sustainability refers to the ability of a country or entity to continue meeting its debt obligations without compromising its economic growth and development. The script discusses Kenya's debt sustainability in the context of the government's borrowing and the potential impact of interest rate changes.

💡Infrastructure Bonds

Infrastructure bonds are debt securities issued to finance public works and infrastructure projects. The script mentions the Kenyan government floating infrastructure bonds, indicating the use of such financial instruments to fund development projects.

💡Portfolio Rebalancing

Portfolio rebalancing is the process of adjusting an investment portfolio to maintain the desired asset allocation. The script suggests that changes in interest rates by central banks can trigger portfolio rebalancing, as investors shift between asset classes in response to market signals.

Highlights

Andrew Bon, CEO of Kenyon Wall Street, discusses the chaotic global markets with Ronnie Choka, a senior research analyst.

Ronnie Choka provides an overview of his role covering macroeconomics, equities, and fixed income analysis in East African Financial Services.

Global markets are volatile due to recent decisions by central banks, impacting long-term bond yields and challenging market expectations.

The Bank of England and the European Central Bank have lowered their benchmark rates, influencing market direction and expectations.

Bank of Japan's decision to raise interest rates is unprecedented, affecting carry trades and causing market sell-offs in US markets.

US job reports are lower than expected, signaling a potential recession and increased unemployment.

The Federal Reserve's decision not to lower rates contrasts with market expectations, adding to the uncertainty.

Markets are pricing in a 60% probability of an emergency rate cut by the Federal Reserve.

Central banks face a dilemma between managing inflation and unemployment, with the US Fed in a challenging position.

The impact of global market decisions on Kenya is significant due to the interconnectedness of the global economy.

Kenya's central bank, CBK, is expected to maintain a wait-and-see approach given the current market uncertainty.

A potential rate cut by CBK could stimulate consumption and investment, positively impacting the common man.

Government debt sustainability is a concern, especially with the country spending a significant portion of its revenue on debt servicing.

Ronnie Choka advises clients on investment strategies in a volatile market, emphasizing selective diversification.

The banking and Telco sectors are highlighted as areas of opportunity for investment in Kenya.

The Federal Reserve's global impact is underscored, with its decisions affecting markets worldwide.

Ronnie Choka's investment advice includes a focus on breakaway growth sectors and caution towards underperforming ones.

Transcripts

[Music]

good afternoon my name is Andrew Bon the

CEO of the Kenyon Wall Street I have a

very special guest here today this is

only Tuesday when we're recording this

and markets are already super chaotic

this week so we've brought a special

guest to help us understand what's going

on so Ronnie thank you for joining us

thank you so much Andrew so please uh

for our viewers who don't know who you

are could you introduce yourself briefly

all right what you do my name is Ronnie

choka I'm a senior research analyst at

aab AIS Africa my scope of coverage

ranges from macroeconomics equities and

fixed income analysis across the East

African Financial Services industry ah

perfect well thank you so much again

Ronnie for joining us thank

you man what is going on in global

markets like uhhuh it has been

it's chaotic everything from Japan to

New York to Germany everywhere is in the

red this week so I guess my first

question is from a macroeconomic Global

Perspective what is going on right now

in global

markets uh great uh where do we start I

think uh the global markets have been

volatile over the past two weeks of

counting uh starting over the US uh the

the latest fed meeting uh opting to

retain The Benchmark

rate uh defying expectations of the

First Rate cut coming uh in August so

markets have opted to defy the

expectations and that what has that that

what that has meant it is that we've

seen bond yields especially on longterm

10e and even 2-year us treasuries the

yields have started coming down yeah uh

the latest uh key fed decision was by

the bank of England where they opted to

lower their Benchmark rate by 25 basis

points following in the footsteps of the

European Central Bank uh just a month

earlier and I think uh that enshrines uh

the

direction uh that yields are generally

expected to take on especially by key uh

key markets yeah but that has also come

at a time when if you look over in Asia

uh the bank of Japan elected to raise

interest

rates uh in a it of course to uh stem

the inflationary pressures that are

rising in the market and also to exer

some y c control okay they also elected

to have their bond

purchases so that that has meant uh on a

global markets uh

context just to put into context one we

know that in Japan they've kept their

Benchmark rates at near zero levels over

the past 17 years and that uh allowed

Global fund managers to exercise what we

call carry trades which is essentially

uh borrowing in yen to go and invest in

other nonen assets us treasuries us

equities uh European equities as well

and even Japanese

equities uh so that has been going on

over the past 17 years so the move by uh

Bank of Japan to raise interest rates

was almost unprecedented historic

historic let me put it it was momentous

for markets and it almost threw markets

in in a frantic yeah uh we started to

see risk of sell-offs in US markets uh

it did not help either that the US jobs

report came in adversely or lower than

expected yeah ific L lower and with jobs

reports especially in the US they almost

always are revised to down a week later

but they do that quietly you know they

don't tell the world they were revising

down yeah but it's worse than probably

what they're saying right now exactly

cuz uh over the past uh 20 more than 24

months and running Benchmark rates in

the US have been uh at at at at very

elevated levels and that has wrought a

lot of pressure for businesses consumers

already the fisc the fiscal buffers that

the government extended to CI US

citizens are almost uh dissipating from

the economy yeah and now the material

effects you're starting to witness is

that uh unemployment numbers are

starting to tick up signaling that uh

perhaps the US economy is entering the

much feared recession mhm so the the The

Narrative of the soft Landing appears

almost elusive yeah if at all uh fed

does not convene uh soon enough okay to

uh make the appropriate decision which

is to lower rates at this point yeah and

what Jerome pal missed the opportunity

to lower rates last week yeah uh but you

know when you see like in the US there's

always emergency rate cuts that they can

do do you think they may if if this

continues if we continue in the red for

2 weeks that they may consider an

emergency rate cut uh yes markets are

pricing in a 60% probability that the

FED may meet intra period to lower rates

and this is occasioned by of course the

red data we getting uh especially in the

pointing out to the recession that

they've been failing all along you know

yeah and you know since monetary policy

tends to have their lugs M so meaning

that even if the FED were to lower rates

abruptly even by 1 percentage point

point it would necessarily translate or

trickle down to an up a downtrend in

unemployment yeah it will take a while

so we almost now in the muddy Zone yeah

it's in it's in a weird spot because

central banks often deal with correct me

if I'm wrong two issues primarily yes

inflation and unemployment

precisely the US fed is in a weird

position mhm where now it has high

inflation and high unemployment yes so

you know and the economic War chest that

they have doesn't exactly align they

can't just print money yeah I mean well

the US can just print money but uh you

know there's the inflation cost to that

and such so you know I guess my next

question though is we're we're talking

about global markets usfed Japan Germany

UK why why does this matter for Kenya

how does it impact Kenya uh it's a great

question uh cuz given the

interconnectedness of the global economy

at this point and the free mobility of

capital across jurisdictions m key

Decisions by central banks have material

and traceable effects to emerging and

Frontier markets such as Kenya such as

where we sit uh even if you look at some

of the trading action on our Blue Chips

we've witnessed uh accelerated sell-offs

over the past uh 2 days yeah what do we

see total yesterday was a a good Loser

yeah total I mean even the trading board

right here can see uh we go a lot of

Blue Chips closing in the red see a lot

of red yeah that gives you the

impression of the market the blue chips

are really Under Pressure mhm uh but at

least we're starting to see some

stability but we don't know whether we

we at the Comfort Zone yet yeah given

even the Yen has held up compared to

yesterday yesterday the Yen shed more

than 3.5% in a day M we usually move in

basis points but 3 percentage points is

a huge stretch yeah yeah so uh we can

trace that uh impact of of course the

Yen movements and the Panic sell-offs

that we saw on equities across developed

and developing economies and at the same

time we've also seen bond yields begin

to decline meaning bond prices are

rising

so markets are warming up to the

prospects of uh rate Cuts in the

coming um however for equities it's it's

it's gloomy uh for now uh markets are

interpreting bad news as bad news yeah

yeah okay interesting now what do we

have cbk tomorrow has its meeting 9:00

a.m. what are your expectations for

that um

in context of the recent developments uh

we know that inflation came in uh 4.3%

which is significantly below the

midpoint Target of 5% mhm uh so that

gives us the trend that inflation is

heading in the right direction yeah uh

we're starting to see increasing

prospects of uh key fed Fed rate Cuts

over over the coming months so that that

can that widens the wiggle room for the

central bank to lower rates to lower the

Benchmark rate at least or even at least

just one uh Insurance cut yeah before

the end of the year okay as as as as as

a signal

or as a message to the markets that you

know we want

to help the economy take off from this

lumy Zone we're in yeah if you look at

private sector credit growth numbers is

coming in at single digit 6.3% as of

April which is very low we should be in

the double digit territory on the

minimum uh so I think at the present

time however I think the central bank

will tend to nudge towards a wait and

see approach okay given the uncertainty

looming in the markets I don't think

they would want to act too too soon mhm

uh probably wait for the market angst to

settle a little bit before making a

sober decision cuz price stability

objective is dual fold yeah uh there's

intern price stability and external

price stability which is the exchange

rate mhm uh for one we know that uh the

central bank has been on a strategy of

raising real yields to sort of anchor

the Shilling and we've seen the Shilling

has now taken on a stable

footing but it's it's done quite well

this year what the world's best

performing currency yeah one of the best

so far cuz what we came from close to 16

5 around January 25th precisely to I

think I I transferred my rent money

today and it came out to like

1295 129. yes exactly so but I know what

last week we had a blip we had a blip

toward I think Wednesday or Thursday

where we got up till almost

133 and and in these numbers I guess

it's important for viewers to know that

uh we're talking about USD Shilling yes

rates um

that well that's typically the one

people use

[Music]

anyways but uh okay now I think it's

important to

understand

why I mean how do how does how if cbk

were to

cut what does that mean you know for the

Common Man how does that change their

life all right um if I told the Central

Bank of Kenya were to cut interest rates

uh tomorrow

that would mean it would open the room

for banks to lower their lending rates

MH to businesses households they'll be

able to borrow more at a a more

affordable cost M uh it would certainly

stimulate a sense of consumption and

investment activity yeah um we would

start to see even that reflect in the uh

leading growth economic growth

indicators um further to that

we would also notice a downtrend in

unemployment numbers more businesses

will be able to expand their activities

hire more stuff to or even increase

their wages to uh you know uh expand

their uh operations as as it were so

that that decision definitely has

significant implications for the common

man

yeah uh it would also uh now because

that's also pending the decisions by

other uh central banks it would also

help give the Shilling a more stable

footing if at all even the US market say

they decide to lower their Benchmark

rates yeah it would drive further

strength in the Kenya Shilling okay and

in ter you know there's a lot of

conversations going on now about

government debt exactly and such so

correct me if I'm wrong I think I'm

correct but uh if we were to you know

hypothetically if cbk were to drop rates

does wouldn't that make it more

affordable for the government to pay off

debt I I think you're very spoton cuz

yes the weighted average cost of debt is

a direct function

of uh The Benchmark rate mhm uh if at

all the Benchmark rate is so elevated it

reflects even in the yield curve mhm

that means the cost at which the

government is borrowing from the private

sector is in the high teenss as it

currently is that in itself raises the

what we call the interest expense to tax

revenue ratio

okay if at all tax revenues aren't

Rising as fast as interest rates are mhm

then that's uh it presents a threat to

debt

sustainability okay and that's a big

conversation going on right now because

what we're we're currently awaiting a

high court DEC de ision on finance bill

23 finance bill 24 has been scrapped so

seems many of the Reven new Revenue

generating models uh are disappearing at

least for the government side so if you

were you know the president or sitting

in in that seat you know

that that's not super

encouraging because we all know the

budgets have been increasing yes uh you

you know and with the increase in debt

and I think currently the country spends

over 70% of the money it collects just

on

debt so that's a little worrying to me

what do what do you think in terms of

like I guess the medium to longterm

outlook of the overall Kenyan economy

you know take for example if I'm buying

a 5-year uh Bond

what should I understand about the

economy right now all right um if you

talk about the medium-term Deb

sustainability outlook for Kenya yeah uh

I think the government has really done a

fairly good job over the past year to

allay debt refinancing risks okay that

is to say the ability of the government

to manage its uh debt position mhm has

fairly improved over the past year case

in point we know this year we had um a

Euro bond that was due to be refin to be

paid in June 2024 it's been paid right

it was paid 4 months in advance

partially and then the remaining portion

was cleared off in

June and the refinancing option came

with an amortized plan that is to say we

don't have

significant bullet debt obligations uh

due Over the near-term Horizon so that

presents a stable fairly stable outlook

for our even our balance of payments

accounts because we don't have large

draw Downs at a single

go domestically uh what we've witnessed

is that uh the weighted average cost of

debt has been on the rise

undoubtedly uh yet at the same time if

we look at the domestic net domestic

borrowing targets M that has been

declining over the past two fiscal years

however for this fiscal year following

the shelving of the finance bill the

government had to raise its net domestic

borrowing targets to compensate for the

projected decline in revenues yeah yeah

but you know what's worrying me about

that now is you know the short-term T

bills yes you know so last week I

actually got really worried last week's

auction uh CU as we were discussing

before the interview started 91 day over

subscribed 91 day looks good the 182 and

364 not looking too hot I know even the

that that one year uh term was like less

just less than 11%

subscribed uh what what does that

tell what what should I understand about

that

okay I think activity in the t- bill

Market is reflective of the overall

duration Market even the longer term 2E

and 20 year

duration that is to say activity has

been largely concentrated on the

shortterm papers the 91 day T bill which

is reflective of the market sentiment

that uh based on the the perceived risk

sentiment in the in prevailing we'd

rather invest shortterm mhm than

longterm okay or if I told you to go

longterm you have to make the interest

attractive the return needs to be as

attractive for me to take up that risk

right yes so that's the sort of

interpretation at play uh that's driving

that uh demand to be skewed towards a

short end okay rather than the long

end but never you know one week in

itself is a fairly small sample to you

know compare conclusively that indeed

demand is skilled on the short

end uh we also need to look at it in the

context of activity in the bond market

the longer term uh duration bonds where

if you look at uh as we speak where the

government floated um an infrastructure

Bond actually two infrastructure bonds

which are currently still on auction MH

and the returns based being uh offered

there are in the High Teens High 17s to

uh there's another one with 14.39%

uh given the the it's a fairly low

threshold of 40 billion they're looking

for and uh bonds are very attractive

they're taxfree to to that mhm yeah so

we expect action to be skewed towards

the bond market with the results coming

in uh next week okay interesting

interesting and right now with

everything not only going on locally but

internationally what are the

main maybe news topics or announcements

you're you're looking out for for the

rest of the week that would help guide

you know an investment

decision great um for one I'm really

looking forward to tomorrow's Central

Bank Red

deis I'm also keen on uh the US fed

especially the decision they'll make on

rates yeah I anticipate they will make a

uh impromtu meeting maybe towards the

end of this month okay but it' probably

only be like 25 basis points right yeah

but even if it's 25 basis points it's a

signal to the market that now rates are

headed lower so even the portfolio

rebalancing will be skewed now away from

cash and near cash assets back into

equities you'll start seeing a divers of

flows away from fixed income assets back

into the equities Market not only in

develop markets but even in emerging and

Frontiers such as where we sit mhm so

that would be a moment momentous

decision in as much as yes the bo ECB

have done it I think the the the the

turn in the needle would be now the US

fed making yeah yeah the decision to

lower the rates okay yeah yeah and as

you had mentioned earlier you know I

think it's also important to note that

people really don't understand how

impactful the Federal Reserve is

globally yeah like you may think ah it's

it's Washington DC no one no one cares

and stuff but like that being that the

US dollar is still the world Reserve

currency for now

uh that decision has a huge impact on

global markets and many countries many

corporates they all base everything they

do off that US dollar so yeah I just

wanted to mention that because I think

you know even some of our viewers may

not understand just how impactful

Federal Reserve is to every corner of

the world but that also means if the US

market crashes mhm you you may feel it

at home too absolutely I couldn't agree

the more yeah uh certainly the decisions

by key central banks such as the US fed

Bank of England European Central Bank

have material implications for Capital

markets MH and the response time is

almost instantaneous yeah from the time

the FED makes the the decision you

almost see flows tilting in

instantaneously even currency

differentials start adjusting almost in

tune MH with a decision yeah okay

interesting interesting now my last

question for you

m I already asked you what you're

watching this week you said the fed and

cbk decisions yes uh you know what what

is your outlook going on right now for

your clients you know you're you said

director of research so how are you

advising clients how are you advising

your people maybe even your employees on

what is taking place currently and how

they should make moves to I guess either

protect themselves from it or compensate

for it all right at the start of the

year we launched our 2024 investment

plan and one of the key themes we

highlighted the report that we've

anticipated will shape the year was that

we expected uh we perceive that we

entering a new regime of higher Market

volatility across and within asset

classes and true to it we've seen over

the past two quarters uh increased

volatility and dispersion of returns in

the equity space and also a lot of

disturbance on the fixed income side

okay yeah and what that means uh in such

a

volatile kind of

Market uh even investment strategies

have

to adjust that is to say now the typical

Buy and Hold

strategy uh in a regime where there's a

lot of volatility where the Kenya stock

market moved from the worst stock market

to the best stock market in dollar a lot

of volatility in one quarter that's a

lot of volatility so our recommendations

to our clients was that one uh investors

need

to adjust their portfolios tilting

exposure towards Breakaway growth

sectors while reducing exposures to

underperforming sectors so sector

diversification yes but selective

diversification okay yeah in as much as

yes we want we want exposures to all

sectors there's increasingly low

tolerance to underperforming sectors

yeah that means we have to shake off or

uh you know reduce at least take like

media for example the media industry the

Blue Chip media you know nmg standard

haven't been doing too hot in the market

they've been loss making over the past

fiscal year yeah and if you look at

manufacturing counters they've really

been uh countering headwinds from the

high inflation um elevated interest

rates low consumer demand

notus announced voluntary liquidation

today needless to say yeah and to add to

that uh we know now there are other

sectors that were really performing very

well the banking sector uh really uh to

to start with recording unprecedented

profitability levels over last year and

even spilling over into this year mhm so

uh even our recommend investment

recommendations you'll find they have a

bias towards the banking sector and a

little bit also towards the Telco sector

which

we think uh Safar in particular uh has

been quite quite undervalued and it's

actually a good uh moment to back up on

the stock given that we are at a turning

point of the business cycle if rates

coming down and flows coming back to

equities okay yeah interesting well I

think that's really good advice for

people to take so you said selective

diversification

diversification all right well thank you

so much for joining us thank you for

helping us

understand what is going on in the

global markets right now but we

appreciate it much obliged all

right thank you

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