Stock market earns investors highest returns in 2013

The stock market outdid other asset classes in returns last year, leaving investors who opted for fixed deposits and Treasury papers at least two times worse off.

The Nairobi Securities Exchange (NSE) earned punters a 19 per cent return on average while buyers of government debt could only manage an 8.2 per cent interest and those in term deposits 6.6 per cent, slightly higher than in real estate at six per cent.

“The best performing asset class in 2013 was equities as in 2012. This has been an Africa-wide phenomenon and I forecast equities will make it three years in a row,” said Rich Management chief executive officer Aly-Khan Satchu.

With inflation at 5.7 per cent on average through the year, it means only equities gave investors double-digit margins in real terms, growing their wealth faster.

Investors’ wealth at the stock market, which is measured by market valuation of all the companies listed on the stock market, increased by Sh650 billion during the year to close at Sh1.92 trillion.

The NSE 20 share index — the benchmark used to gauge the market performance — is currently at 4,926.97, a 19.2 per cent increase from its year opening level.

“The easy monetary policy held by foreign countries allowed for liquidity, boosting foreigners’ participation. The elections kept the market down making it attractive,” said ABC Capital manager for corporate finance advisory Johnson Nderi.

READ: Big ticket investors defy tough year to grow wealth

Of the 60 companies listed on the bourse only six closed the year trading at lower prices than those recorded a year ago.

Foreign purchases up to November, according to NSE data, stood at Sh86.7 billion with Safaricom, Equity, KCB and EABL touching all-time highs during the year.

Among the key gainers were Safaricom’s 600,000 shareholders who braved a five-year depreciation that saw the stock reach a low of Sh2.50, half the listing price in 2008, before bouncing back to a high of Sh11 this year.

Centum Investments, which acquired pension fund managers Genesis Investment and is part of the ongoing bidding war over Rea Vipingo, was also vibrant as were underwriters Britam and Pan Africa Insurance.

The bourse’s strong performance will see it finish among the top three best performing markets in Africa, only behind Ghana and Malawi.

Investors in unlisted shares also reaped good benefits as businesses rebounded in the wake of a peaceful change of government after the March 4 General Election.

“Those who have private equities, especially those on the path to listing such as Family Bank and UAP, have also done well with share prices almost doubling,” said Stanlib Kenya chief investment officer Anthony Mwithiga.

He said Family Bank, which is contemplating listing on the bourse, is currently trading at Sh44 per share over the counter having started the year at Sh30 per unit.

Real estate continued to perform well as it has done in the last decade following infrastructural expansion.

Knight Frank research shows the commercial segment of the sector recorded on average a 7.5 per cent increase in value while the residential segment had a 4.9 per cent appreciation.

“The retail sector has seen great demand even after the Westgate attack — there has been strong growth in land and rent value. Residential sector has not seen as much growth as mortgage rates are still high,” said Knight Frank managing director Ben Woodhams.

On the losing end were investors who opted to keep their money in fixed deposits hoping to continue raking in high interest paid out by banks in order to attract and retain cash. Banks cut their deposit rates during the year in efforts to protect their income margins.

In the first nine months of the year the six large banks paid depositors Sh16.7 billion down from Sh26.1 billion in the corresponding period last year. The cut followed the central bank’s decision to drop its indicative rate to 8.5 per cent from 18 per cent the previous year.

During the high interest rate period, banks were forced to price cash deposits higher than the government debt in order to attract investors and hence avoid taking money from the punitive inter-bank market.

Government securities yielded low returns compared to the recent past because of political uncertainties, mostly related to the elections and the International Criminal Court trials.

The indicative Treasury bill rate dropped by half in the three months between June and March to 5.1 per cent before rising to close the year at 9.4 per cent. Government securities have an inverse relationship with interest rates with their value rising as interest rates fall.

“Those who hold bonds for long have only enjoyed interest payments and not capital gains,” said Mr Mwithiga.

KCB, Equity, Barclays and Co-op bank recorded valuation gains of Sh102 million from government securities available to them for trading compared to Sh6.8 billion reported in September last year.

Returns from offshore investments were also depressed because of the stability of the shilling. Those who put their money beyond the country’s borders reap more from forex gains following liquidation of the asset and the transfer of the money back home.

During the depreciation of the shilling, offshore investments were ranked among the top performers due to the forex gains recorded on repatriation.

Pension funds, which are invested across all asset classes, grew by Sh85 billion in the six months to June to Sh633 billion with the sector regulator attributing it to the growth of the equities market.

The pension industry invested 23 per cent of its portfolio in the equities market, 33 per cent in government securities and 19 per cent in real estate.