Investors in government securities, hard currencies and offshore financial assets have made the best returns in 2023, beating property and shares listed on the Nairobi Securities Exchange that difficult economic conditions hit hard.
Treasury bonds auctioned this year paid investors between 12.9 and 18 percent, while the one-year Treasury bill yield has ranged between 10.4 and 15.9 percent. Investors demanded higher rates from government to account for elevated inflation, a weaker shilling and the State’s difficulties in accessing credit from the external market on cost concerns.
Holders of hard currencies—the US dollar, euro and British pound—have also enjoyed double-digit returns following the appreciation of these units to record levels against the shilling. The pound has gained 31.9 percent against the shilling since January, while the euro and dollar are up by 29 percent and 25.3 percent respectively.
However, the NSE has shed 29 percent or Sh574.4 billion in investor wealth since the beginning of the year to stand at Sh1.41 trillion, hit by foreign investor exits due to higher interest rates in Western markets and a weakening shilling that exposed dollar investors to exchange losses.
These losses, which have largely been on large blue-chip stocks, have pulled the NSE 20 Share index down by 11.9 percent, and the All Share Index by 28 percent since January.
“Fixed income has outperformed equities on the back of the securities’ ability to price in the evolving macro-economic risks in favour of investors, as higher risk translates to discounted prices and higher coupons,” said Wesley Manambo, an analyst at Standard Investment Bank.
“With 13 profit warnings in the calendar year, most listed firms were operating in a very tight environment. Local investors also remained speculative with a few taking advantage of the discounted entry levels, thus skewing the overall demand and supply dynamics towards the latter which kept share prices below their fair value estimates.”
Government securities became the go-to shelter for investors seeking to protect themselves from the steep paper losses in equities, with foreign exchange also offering similar safety against losses for savvy investors.
For instance, a purchase of $100,000 at the beginning of the year at a price of Sh123.37 per dollar (the official rate) would have earned a return of 25.4 percent or Sh3.13 million by December 21, when the dollar traded at Sh154.68.
This depreciation-backed gain as well as a lingering shortage of dollars in the first half of the year, saw Kenyans raise their dollar deposits in commercial banks to a record Sh1.45 trillion by the end of October from Sh921.05 billion at the beginning of the year.
For those opting to keep their shillings in fixed deposit accounts, banks offered an average interest rate of 7.88 percent in the nine months to September (as per latest data from CBK), up from 6.76 percent in 2022.
Unit trusts, which have also grown in popularity with Kenyan investors seeking the services of professional investment advisers, are now offering annualised returns of up to 15.9 percent in money market funds, up from about 10 percent a year ago.
Money market funds account for 75 percent of the Sh175.97 billion assets under management in collective investment schemes. Their returns closely track those of Treasury bills and fixed deposits, which are their main holdings.
Offshore investments have also made high returns this year, touching 43.9 percent in the year to September driven by higher interest rates and rising stock markets in western economies.
Allocation to these external assets, however, remains low relative to other assets such as fixed income, equities and property, meaning that the high gains have a limited impact on overall portfolios for institutional investors like pension funds.
In the property sector, returns have fallen from both sales and rental segments, due to the tough economic environment that has constrained spending power and higher interest rates that have affected capital flows to the sector and uptake of new mortgages.
A HassConsult analysis shows that in the 12 months to September, average house prices in Nairobi and its environs fell by 3.7 percent, compared to an increase of 4.8 percent a year earlier. Asking rental prices fell by 1.5 percent compared to an increase of 0.3 percent in the year to September 2022.
Land sale prices, while in positive territory at 0.83 percent, still lagged last year’s growth of 1.23 percent.
“Banks are also exercising stringent lending [standards], mitigating risk of loan defaults in a tightening economy that is characterised by inflation and higher taxation,” said Sakina Hassanali, head of development consulting and research at HassConsult.
The property market, once the best-performing asset class and magnet for high-net-worth investors like pension schemes, has slowed down in recent years due to oversupply and the capital constraints.
There were some pockets of decent returns, however, in suburbs such as Lang’ata and Kilimani, which registered sales price increases of 10 percent in the period, and in satellite towns such as Kiambu, Ngong, Tigoni and Ruiru, where prices rose by between 11 and 15 percent.
Satellite towns also outperformed the average in land price growth at 6.4 percent, led by Thika, Syokimau, Ngong and Athi River that have benefited from improved road infrastructure.
