How Supreme Court ruling affected markets
Predicting what will happen in the stock market is hard, but it is not difficult to know what effect uncertainty has on the Nairobi Securities Exchange. Every five years, the question, “It’s an election year, what will happen to the the stock market?” always comes up. What might not be so obvious is how important a role the economy plays in deciding which party will win. Following the nullification of presidential results, temperature and uncertainty are now on another new level. Before the Supreme Court nullifying the presidential election, the NSE 20 share index was trading at an all-time high for the last 23 months. The market was planning a takeoff, but the election created uncertainty and markets do not operate well under such an environment. This is the reason the market declined so deepon Friday, immediately after the court decision. This proved elections have a very big impact on capital markets. The point I am making is the same that a field of study called behavioural finance has told us over and over again — we may see patterns, but that doesn’t mean they are relevant to the decisions we are about to make. Investors react to any news, either positive or negative. But in light of the forthcoming November vote, as unpredictable as this fresh election, stocks market tend to have more sell off. Afterwards it shall regain in a fairly predictable way. However, we could still see a bounce in equities before year’s end, as the months leading up to the holidays have tended to be good for the stocks. It’s crucial to remember that markets are fundamentally unpredictable. Panics and manias happen from time to time. A fresh election is a new kind of phenomenon. It is not a cliché to report that anything is possible. However, that doesn’t mean that we should expect financial fireworks in this second quarter.
NDIRANGU NGUNJIRI Watermark Consultants