Government securities and sales of homes offered Kenyan investors the highest returns this year out of main asset classes amid soaring inflation in the wake of the worst drought in 40 years and Russia’s war in Ukraine.
The equities market, which emerged the second best performer last year with returns of 11.91 percent, witnessed share depreciations on reduced appetite for emerging markets after a jump in interest rates in the developed markets such as the US.
Investors’ wealth at the Nairobi Securities Exchange (NSE) shrank 23.4 percent, wiping out Sh614.5 billion of shareholders’ fortune.
Business Daily analysis of the different asset classes in 2022 shows that the highest available returns locally came from offering loans to the government, which stepped up borrowing to plug shortfalls from revenues and increased spending.
Returns from bonds auctioned this year ranged from 11.76 percent and 14.2 percent while Treasury bills offered rates of between 8.17 percent and 9.88 percent, helping them beat fixed bank deposits, land and the equities market.
Home prices in Nairobi have increased at the fastest pace in years on the back of renewed demand from buyers who had slowed down acquisitions at the peak of Covid-19 economic hardships.
Data by realtor HassConsult show the price of an average house within the city rose 10.3 percent in the year to September compared to a drop of 1.1 percent in the same period a year earlier.
Land prices in Nairobi dipped marginal by 0.13 percent and recorded a jump of 9.49 percent in the satellite towns such as Kitengela and Juja, compared to a growth of 5.55 percent in the year to March last year.
The growth in the cost of plots in the satellite towns was the fastest in five years, a reminder of the days when the property craze saw coffee plantations in the Nairobi suburbs uprooted to pave the way for gated housing estates and shopping centres.
Real estate was among the worst-hit sectors by the economic fallout of the pandemic as orders by new home buyers dried up, largely due to income and job losses, cautious lending by banks, and investors choosing to keep their cash in hand as they rode out the economic uncertainty.
The sector had been one of Kenya’s fastest-growing in the decade to 2015, with returns outpacing equities and government securities.
This means that returns from government paper, home sales in the city and land prices in satellite towns outpaced average inflation that stood at 7.5 percent, offering investors on the assets classes a positive return.
Fixed bank deposit accounts, which are predominantly used by cash-rich firms and high-net-worth individuals, trailed inflation after offering savers an average of 6.69 percent.
The developed markets are currently battling high inflation that has forced their central banks to adjust rates upwards, attracting foreign investors who have been fleeing emerging markets like the NSE.
The benchmark US 10-year bond rate — a closely watched gauge of market inflation expectations over the next decade — has climbed to 3.68 per cent, up from 1.63 per cent at the start of the year.
This has sent stocks tumbling across the globe as investors pulled out of equities on the expectations that inflation would surge.
Smaller markets like the NSE have taken deeper hits because investors, particularly foreigners, get attracted to the Western bonds and equities that are viewed as safe havens in times of global uncertainty.
“Investors have been forced to contend with value erosion in their portfolios in 2022 against the backdrop of the shake-ups in the geopolitical environment,” Wesley Manambo, a research analyst at Nairobi-based Genghis Capital, told Business Daily.
“The geopolitical tensions in eastern Europe [Russia and Ukraine] tightened the already bottlenecked global supply chains [which started after the Covid-19 pandemic hit]. This coupled with the resulting energy crisis caused additional dislocation to the global economy following the pandemic shock the previous year.”
The market value dipped 23.4 percent to Sh1.98 trillion Thursday from Sh2.59 trillion at the beginning of the year.
This is in contrast to a gain of 10.97 percent in market capitalisation in 2021, pointing to a slide in share prices that has hit blue-chip counters like Safaricom, Equity and KCB Group.
Market data shows returns for investors whose portfolio tracks the NSE 20 Share — comprising of 20 firms most valued firms — were negative 12.5 percent in the review period.
Money market funds, which mainly invest in government debt securities, offered returns of up to 10.88 percent.
