Page 66 - SACCO STAR ISSUE 43
P. 66
OPINION
Macro-view and nse
outlook in 2018
By Johnson Nderi
Corporate Finance and Advisory Manager at ABC Capital.
The Nairobi Securities Exchange which are fancy terms that imply consumer prices in the US which has
is many things but boring. increase in money supply. A typical meant the consumer is in danger of
Expect disruption in the indicator of increased money supply being adversely affected by rising
macro-economic picture as is lower interest rates which typically consumer prices as the economy is
a number of events unfold. stay low unless consumer prices start looking like it is improving.
One of the events of international focus rising in which case the monetary
should be the American Interest rates in policy is reversed. As explained earlier, the
the international markets. consequence of this tightening is
As one may imagine, the prices a slow down or a drop in prices in
LET ME EXPLAIN in developed markets went so general. This should be expected in
One of the theories that have shaped high and necessarily investment consumer prices, commodity prices,
international trade is the quantity theory returns, or interest rates, came asset prices and land prices. Asset
of money. This theory holds that, the down significantly so much so that, prices however are typically the most
general price level of goods and services emerging market investments and sensitive to this dynamic.
is directly proportional to the amount of frontier market investments became
money in circulation, or money supply. So very attractive. This phenomenon can be explained
when the supply of money keeps going in two ways. The first is a rise in
higher, holding production constant, the We have benefited a lot from this interest rates where funds are being
purchasing power of production will dynamic which in turn saw a rise sourced suggests that valuation of
go down and this will be manifested in in asset prices locally. Any keen assets is likely to be lower as money
higher prices. These prices can be either observer would have noticed becomes more expensive relative to
consumer prices or asset prices. strong correlations in asset prices assets.
globally. This was evident even
Asset prices usually rise ahead of where performance of underlying The second is a rise in interest rates
consumer prices because those who are assets weren’t strong. To give also means less money is available
able to access these funds are typically you an indication, countries in for purchasing meaning demand for
people who have already satisfied their financial distress were able to raise assets is impaired. Lower demand,
consumer demands and therefore most funds using Eurobonds and other borrowing from the law of demand,
funds go towards investments. The initial similar instruments. There was an suggests lower prices.
beneficiaries are bond markets, equity international deluge of funds.
markets, commodities and land.
INTEREST RATES IN AMERICA
Following the global financial and HAVE STARTED TO RISE AGAIN
economic crisis of 2008, all globally The US Federal Reserve has seen it
significant central authorities responded wise to tighten the monetary taps.
with quantitative and qualitative easing This perhaps was inspired by rising
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