How Supreme Court rul­ing af­fected mar­kets

The Star (Kenya) - - Voices -

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

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