Where investors made billions in the first six months of 2023

Lending to the Kenyan government and buying hard currency for investment purposes delivered the best returns to investors in the first half of this year, surpassing earnings from property and shares listed on the Nairobi Stock Exchange (NSE).

a The daily business An analysis of different asset classes in the six months to June shows that government bond yields auctioned this year averaged 13.64 percent, up from 12.83 percent in the corresponding period last year.

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The highest yield on bonds issued this year is the 15.84 percent that investors earn on the seven-year infrastructure bond sold last month, which also has the added benefit of being tax-free.

Treasury bill yields have also risen this year, surpassing the 12 percent level for all three periods at the latest auction, from an average of 9.8 percent at the start of the year.

These returns rose as investors took into account rising inflation, a weak shilling and the government’s difficulties in obtaining credit from the foreign market due to cost concerns.

For its part, the stock market faced headwinds on the back of continued selling by foreign investors, although the losses were on a smaller scale compared to the first half of 2022.

The NSE exchange shed 320 billion shillings from investors’ wealth during the first half of the year, compared to 653.7 billion shekels in the previous year, and the three indices remained in the red, led by the All Share index at minus 16%.

The foreign investor’s sale was a result of the reallocation of capital to Western bonds and stocks that are seen as safe havens in times of global uncertainty.

“There is an aspect of the journey to safety that has been used with a higher allocation to fixed income. Entry into the macroeconomic environment this year has not been convincing, resulting in a negative outlook for the categories of Other assets such as stocks and real estate.

“In this scenario, fixed income offers investors a safe haven while they monitor the situation.”

Like stocks, the real estate market has struggled to gain much traction this year, offering stable rents and sales returns.

The real estate market, once a top-performing asset class and magnet for high-net-worth investors such as pension schemes, has slowed in recent years, with the Covid-19 pandemic in particular hitting sales and rental prices hard.

An analysis by landlords Haas Consult showed that rental yields in Nairobi in the first quarter of the year were negative 0.5 per cent, down one per cent in the corresponding quarter of last year. Sales prices increased by 0.02 percent, compared to an increase of 2.8 percent in the first quarter of 2022.

There have been positive returns though on cash holdings, for both local currency and hard currency.

Those with dollar deposits at local banks enjoy exchange rate gains of 12.2 percent, with the US currency up that margin over the shilling since January.

Meanwhile, the shilling weakened by 14.3% against the British pound and by 14.1% against the euro, which means that holders of these currencies also made nice gains.

Foreign investment has also generated high returns this year – up 16 percent in the first quarter – driven by higher interest rates and stock markets in Western economies.

However, the allocation to these external assets remains low compared to other assets such as fixed income, equities and property, which means that high earnings have a limited impact on the overall portfolios of institutional investors such as pension funds.

Data from the Central Bank of Kenya (CBK) showed that fixed deposits in banks were offering an average interest rate of 7.57 percent in the first four months of this year, up from 6.55 percent in the corresponding period in 2022.

Although rates are below the six-month inflation average of 8.5 percent, they have been on the rise due to banks competing for deposits among themselves and against rising prices for government securities.

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However, small savers did not make significant gains in the money market environment as their rate of return remained at around 3.6 percent since banks increased their reliance on wholesale deposits to support their lending.

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