JOHN DAVID

NAIROBI, KENYA Kenya's stock market is facing yet another monumental test in the impending August 4 referendum which is set to define its future.

After a sterling run in the first half of this year, the Nairobi Stock Exchange is experiencing jitters ahead of the constitutional vote that is set to herald a new trading dispensation based on the outcome.

The political scene is fast gathering storm ahead of the referendum, rekindling fears of the last general elections whose fallout handed the country its worst social, political and economic blow since independence.

Analysts say fallout could harm the market and erode the gains already made while an affirmative vote would boost investor confidence thus providing a perfect climate for growth.

"The bourse favours and expects nothing short of a positive vote to stir the equity markets. Any form of negativity will send the wrong signals and scare away investors," Ms Dipna Shah, an investment analyst with PineBridge Investments told East African Business Week in an interview.

The stock market has traditionally devised mechanisms to cushion itself against volatility but the anticipated climate based on the vote's outcome could have far reaching effects on the bourse, reckoned Ms Shah.

Currently perceived as a high political risk market, investors are reportedly adopting a wait-and-see attitude as the clock ticks towards the referendum.

"Activities at the bourse are likely to slow down at the moment, but we expect robust trading after the vote should the people return a positive verdict on the proposed laws," said Ms Shah.

During the first half of this year, the stock market remained bullish after defying global trends to record positive gains

PineBridge's 27 share index indicate that the market rose by 10.9 % in the opening quarter of 2010. Similarly the NSE 20 Share index increased by 6.6% while the market turnover rose by 26 % to $ (Ksh23.9b)

Experts reckon that this growth momentum can only be sustained if the voting process is peaceful and the Yes vote carries the day.

"A peaceful referendum process would instill investor confidence spell democratic maturity for this country. These are key indicators for investment uptake hence robust trading and a healthy stock market," Aly Khan Satchu, a licensed market data vendor told East African Business Week.

The weak Euro economy is also a likely factor that could slow down the NSE. The anticipated double dip recession in the Euro zone may lead to a pull out by foreign investors who have been taking a stake in the market due to the low value stocks.

But in the midst of the uncertainty, some key market players are angling for a windfall during the referendum period. The media and telecommunications industry expect to reap maximum returns from advertisements from the opposing sides.