Where top investors made money in 2020

Government bonds and Treasury bills offered Kenyan investors the best returns this year after listed shares and property took a beating in the wake of Covid-19 economic fallout.

Those who opted to keep their money in bank accounts also earned lower returns as lenders cut their deposit and savings rates to lows last seen in 2015 and 2016 respectively.

The Business Daily analysis of the different asset classes for this year shows that the highest available returns locally came from offering loans to the government, which stepped up borrowing to plug shortfalls from tax collections.

Returns from Treasury bills ranged between 6.85 per cent and 9.8 per cent while bonds offered coupon rates of between nine to 13.4 per cent, helping them beat real estate, land and the equities market.

Bonds

are the biggest asset class in the capital markets at Sh3.85 trillion, and their steady returns have made them a safe haven in times of turbulence similar to one triggered by effects of Covid-19.

The equities market, which emerged top last year in offering investors juicy returns, witnessed share depreciations as foreign investors withdrew amid turmoil in global markets over the coronavirus outbreak

The Nairobi Securities Exchange (NSE) reversed a Sh399 billion paper wealth gain it posted in 2019 to record a loss of Sh200 billion in the year to December 30.

Returns from the real estate sector, while remaining resilient in the face of the Covid-19 challenges, have also lagged those of the fixed income segment this year.

Home sales and rental income recorded returns of less than five percent on price recovery in the third quarter, buoyed by more firms resuming operations after the easing of some restrictions imposed to stem the spread of Covid-19.

The easing of coronavirus restrictions has seen firms stop layoffs and raise the number of workers on their payroll, driven by improved cash circulation amid re-opening of businesses and schools.

Rental income grew 4.9 percent in the year to September while home prices rose 2.3 percent, according to HassConsult, which conducts a quarterly property pricing index in Kenya.

Land prices have dropped further in Nairobi and the surrounding counties of Kiambu, Kajiado and Machakos despite the ongoing recovery from coronavirus hardships.

Putting breaks to boom HassConsult reckons that land prices dropped by 2.7 percent in Nairobi over in the period to September, offering a bargain to investors with money for real estate and putting breaks to the boom that saw values increased nearly four-fold in under 10 years.

The Nairobi bourse is largely influenced by Safaricom and bank stocks, which together account for 85.5 percent of the markets valuation.

Although, Safaricom has a gained 7.94 percent this year, banks have fared badly, averaging declines of between 20.3 percent and 50 percent across the 11 listed lenders.

"Even last year, the market was showing some weakness, then Covid-19 came and made things much worse. The weakness is expected to continue into next year given that financial performance is not going to be good for most of the companies," said Gerald Muriuki, an analyst at Genghis Capital.

"We may have outliers here and there like Safaricom, whose fundamentals are solid and whose recovery is expected to be faster than many other stocks."

Just 10 of the 62 listed firms at the NSE have posted a positive return this year, with Safaricom the only blue chip on the gainers list that is dominated by small cap stocks.

Mr Sundeep Raichura, the chief executive at fund administrator Zamara, said that he sees a mixed bag as far as returns from the financial markets are concerned, with equities only likely to see modest recovery and interest rates on government securities expected to rise further.

"We can expect modest recovery in the equities if we can bring Covid under control, otherwise the expectation is that the market will hold steady. On the fixed income, the Treasury is under a lot of pressure to finance the budget, and this could cause rates to go up," said Mr Raichura.

"Another area that can grow is private equity, given the need to get investment into the country."

In previous years, real estate had been one of the country’s fastest growing sectors, with returns from property outpacing equities and government securities.

However, the sector has since 2016 suffered slow growth in sales and rental prices recently due to a huge stock of unsold units, amid credit access constraints that have negatively hit demand.

The depressed property market was worsened by job losses witnessed across many sectors due to the Covid-19 pandemic, which led to an increase in seizures of homes linked to loan defaults.

Falling rents

"Overall rents increased by 2.5 percent over the third quarter and 4.9 percent on an annual basis. A few suburbs have bucked the trend of falling rents which still continue as tenants are negotiating for discounts amid the tough economic environment," said HassConsult head of development consulting and research Sakina Hassanali when presenting the report last month.

For people keeping their money in bank accounts, CBK data show that the average savings interest rate stood at 3.49 percent in October, the lowest recorded since July 2016.

Interest paid on large deposits— largely from cash-rich firms which usually have room to negotiate higher rates—on average stood at 6.37 percent in October, the lowest since July 2015.

The bulk of savings accounts do not earn interest because most banks have set a threshold below which they take the deposits for free.

Banks have cut the deposit and savings rates partly due to their inability to raise interest charges as they await approval from the CBK. On average, lending rates had dropped to 11.92 percent in October from 12.43 percent a year earlier.