Why it will pay to be a nimble investor in 2016

In the last five years most Kenyans have been getting poorer as the cost of living has risen faster than salary increments. This has created the need for prudent investments to substitute employment benefits.

A poll survey by Ipsos Synovate had 49 per cent of homes saying they were going through a rough financial patch compared to 32 per cent who reported an improvement in their finances.

The poll results indicate only a few Kenyans have accomplished their goal of improving their finances – a new year’s resolution that has been ranked top by most people in the last three years ahead of healthy living – loosely translated to losing weight –, spending more time with family, and spiritual nourishment.

During the year several companies announced job cuts, froze salary increments, snubbed bonus calls and issued profit warnings. This left most households in financial stress with 54 per cent of Kenyans polled reporting worsening economic conditions over the last three months.

Analysts concur on real estate being the best bet to change fortunes next year with equities trading recommended only to the bold. Private investment in growing businesses using equity funds is also recommended along with short term investment in Treasury bills and bonds.

“I would still put my money into real estate but would diversity into equity funds, particularly those targeting SMEs,” said X.N Iraki, a lecturer at the University of Nairobi.

Real estate has proven to be a good bet with the industry rallying for over a decade. Aly-Khan Satchu, chief executive of data firm Rich Management, notes that the main opportunity is in land prices and not development.

“Real estate prices, in many respects, look fully priced. I would look for land-based opportunities because it’s clear that devolution has been a catalyst for economic diffusion across the country,” said Mr Satchu.

Sacco societies have formed housing co-operatives to pool together funds from members and invest in large tracts of land for sub-division.

The co-operatives no longer limit their membership to professions and regions as they used to do. Instead, they now have an open policy making them good vehicles to invest in real estate.

During the year, the Nairobi Securities Exchange lost 21.7 per cent as indicated by the 20 share trading index. The index is composed of shares from the 20 most actively traded counters and is used as an indicator of the general direction of the market.

Volatility

Analysts opine that the NSE remains volatile and best for long-term investors.

“We remain neutral with a bias to negative on equities given the lower earnings growth prospects for this year. The market is now purely a stock pickers’ market, with few pockets of value,” said Cytonn Investments.

Most of the counters are trading at low prices which makes them a good buy. But with the expected declaration of below par financial results in 2016, price gains are expected to be slow.

“I think the stock market will certainly be higher at the end of 2016 than at the beginning of the year. I would pick up some blue-chip banking stocks like KCB; I would remain overweight on Safaricom and I would spice up the portfolio with some KenGen,” said Mr Satchu.

Investors with a lower risk appetite have the option of investing in Treasury bills and bonds whose return is assured. Interest rates are expected to rise later in the year with government having used short-term debt, which matures early 2016, to cover its budget deficit. This implies the Treasury will be under pressure to raise cash and could be willing to pay a premium.

“The pressure on rates is expected to persist. As a result, we maintain our view that investors should be biased towards short-term fixed income instruments given the uncertainty in the interest rate environment,” said Cytonn Investments.

The note also serves as a warning shot to those who plan to take loans from commercial banks, which are also likely to hike interest rates in tandem with Treasury rates.

This makes the option of inviting angel investors or signing partnership more attractive instead of taking on debts whose costs may rise during the year.

Short-term accounts

Cash holders would also be advised to hold their deposits in short-term accounts to take advantage of any interest hikes.

Mr Satchu’s advice is that no one should be comfortable during the year, but rather take constant stock of their portfolio and exit when need arises.

“We are living in a volatile world and, therefore, it will pay to be nimble. It might not be wise to be wedded to your positions or portfolio through 2016. For example, in 2015 we were presented momentarily with an opportunity to buy one-year Treasury bills at around 23 per cent,” he said.