Morgan Stanley is turning cold on Kenyan assets as deadly protests rattle the nation’s capital, urging investors to look south for opportunities in Angola after a recent currency devaluation.
(Bloomberg) — Morgan Stanley is turning cold on Kenyan assets as deadly protests rattle the nation’s capital, urging investors to look south for opportunities in Angola after a recent currency devaluation.
Strategists including Neville Mandimika are turning less bullish on Kenya’s international bonds as recent social unrest forces businesses to close, threatening tax revenue and spurring fiscal risks. At the same time, they’re upgrading their view on Angolan notes due to signs of a more-stable currency, improved fiscal dynamics and attractive valuations.
“It’s now time to turn to a like stance on Angola, given that valuations are screening cheap,” the strategists wrote in a Monday note. “We now prefer Angola’s long end relative to the Kenyan long end given the balanced outlook for the former and the downside risks for the latter.”
Morgan Stanley recommends buying Angola’s foreign bonds due in 2049 versus Kenya’s 2048 dollar debt. Angola’s dollar-denominated debt has returned about 0.7% so far this month, on average, while Kenya’s bonds are down 1.3%, according to data compiled by Bloomberg.
Supporters of Kenyan opposition leader Raila Odinga have been protesting against the outcome of last year’s elections and rising living costs.
That comes in sharp contrast to recent developments in Angola, which has seen support from oil prices and signs of exchange rate flexibility after the nation’s National Treasury abstained from selling foreign exchange. That saw the kwanza depreciate about 30% to over 800 per dollar in June.
Allowing the depreciation, along with the removal of fuel subsidies brings Angola closer to unlocking support from the International Monetary Fund, which would be beneficial to the credit.
“Angola — with its limited short-term financing needs and oil prices trending higher — is looking like a good alternative,” said Oren Barack, managing director of fixed income at New York-based Alliance Global Partners, which holds both countries’ dollar bonds. “The government is undertaking an unpopular but necessary decision to cut local subsidies for fuel for the domestic market, which will improve their current account balance and shore up finances.”
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