The gradual withdrawal of the US monetary stimulus in coming months could hit the stock market with a possible fall in asset prices in Kenya this year. International Monetary Fund (IMF) managing director Christine Lagarde has said that the tapering of the US economic stimulus programme may impact markets that are more integrated into the global economy such as Kenya's . "Going forward, as Kenya becomes more integrated into the global economy it is bound to be exposed to external shocks — through spillovers from trading partners' economies or volatility in international financial markets," said Ms Lagarde who is in Kenya on an official visit. The lower inflows will be caused by a decline of liquidity in international markets this year, as the amount of US dollars in circulation falls. In time of shortage of global liquidity, investors tend to retreat to their home markets, leading to a decline in foreign capital flowing into frontier markets. However, the negative effects will likely be tempered by the fact that the local market has deepened to the extent of being able to absorb external shocks, said the Old Mutual Asset Managers (OMAM) in its 2014 economic outlook forecast. "We expect that the withdrawal of the monetary stimulus will trigger some reduction of foreign flows into frontier markets such as ours. But this should be not be that big because our capital markets have some depth that can withstand some of the shocks," said Peter Anderson chief investment officer of OMAM. READ: Nervous foreign investors cut NSE wealth by Sh100bn The Nairobi Securities Exchange 20-Share Index recorded a 19.2 per cent improvement last year, while the all-share index rose by nearly half.Ms Lagarde said Kenya's integration in the global markets makes it vulnerable to external shocks. "There is also the risk of potential spillovers from emerging market economies to countries in Sub-Saharan Africa, particularly those that are more financially integrated with the global economy such as Kenya ," said Ms Lagarde. She said further bolstering the foreign reserve position and lowering the debt burden would ensure that the country is resilient to the shocks. OMAM estimated that the economy was likely to have registered a marginally higher GDP growth rate of 4.7 per cent in 2013 as compared to 4.6 per cent in 2012. "GDP growth is expected to improve in 2014 due to a stronger push on execution of development expenditure, progressive release of funds into the counties, lagged economic impact of credit growth, revenue generation from mining activity," said Mr Anderson . He said the possible confirmation of higher amounts of recoverable oil —over and above the 300 million barrels so far reported — will spur additional capital expenditure into the region, favourable weather conditions, and relative stability in global oil prices would be key to the economic outlook. Credit take-up is likely to double this year compared to last year, Mr Anderson said, citing demand from various sectors of the economy. In September, credit to the private sector grew by 17.4 per cent, exceeding the 16.9 per cent target for the first time since May 2012 .
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