Where top investors made money in 2019

Returns from the Nairobi Securities Exchange #ticker:NSE (NSE) have overtaken bonds in 2019 as the equities market reversed last year’s losses and regained the top position as the shortest route to legal fortunes in Kenya’s economy.

The Nairobi bourse, helped by Safaricom #ticker:SCOM and bank stocks, has so far made a paper wealth return of 16 percent or Sh399 billion to hit Sh2.5 trillion.

The equities market reversed a Sh400 billion loss it posted in 2018, helping it beat bonds, real estate, land and bank savings in rewarding investors.

Returns from fixed income investments, mainly government securities that gave the best returns in 2018, ranged between 6.85 percent and 13.2 percent depending on the maturity of the assets.

Real estate returns were between 5.5 percent and nine percent based on type of property while earnings from bank savings dipped to a 36-month low of 4.58 percent, reflecting the ongoing impact of the removal of the floor interest rate last year.

Land cost in Nairobi increased by only 1.69 percent over the past year while satellite towns like Ngong and Kitengela have seen a 5.11 percent rise, says property consultant HassConsult Real Estate, suggesting a cooling in prices following a sluggish property market.

“The third and fourth quarters of the year saw significant rallies at the NSE especially on bank stocks that had a positive risk sentiment following the repeal of the rate cap. We saw some of the indices paring back the losses they had registered in the first half of the year,” said Churchill Ogutu, a senior analyst at city-based investment bank Genghis Capital.

The positive return at the NSE was on the back of Safaricom and bank stocks, which account for nearly 80 percent of the Nairobi bourse’s market value.

This dampened the fact that more than half of the NSE firms or 36 out of 62 companies have so far posted a negative return.

Safaricom’s share movement has a huge bearing on the overall market performance given that it accounts for 49 percent of the NSE market value, which grows to 79.8 percent when banking stocks are included.

The share price of the telecoms operator rallied to hit Sh31.65 yesterday, up from Sh22.20 each at the start of the year — reflecting a 42.57 percent growth over the period.

Analysts said investors were buying into Safaricom on the back of its recent financial report and outlook.

The telecoms operator posted a 14.4 percent jump in its half-year net profit to Sh35.65 billion on strong M-Pesa and mobile data revenue growth.

Kenyan bank shares also rallied following the removal of a legal cap on commercial interest rates, which curbed lenders’ profits.

Investors have rushed to buy the banks’ stocks at the Nairobi bourse on anticipation of increased gains in coming days as others eye long-term gains in the form of dividends.

The biggest beneficiaries of the bank stocks’ rally include pension funds, wealthy individuals and foreign institutional investors who hold stakes worth billions of shillings in the lenders.

Equity #ticker:EQTY was the top gainer among the 12 listed banks with a share appreciation of 49.9 percent to close trading at Sh53.50 followed by KCB (41.5 percent) and NCBA, which is the product of a merger between CBA Group and NIC, at 23.20 percent.

Returns on government paper ranged between 6.85 percent for the 91-day and 9.47 percent on the 364-day Treasury bills, while in the bonds segment the rates ranged from 10.87 percent for a five-year paper issued in May to 12.89 percent for a 25-year bond issued in July.

“Fixed income returns have been mixed based on the section of the yield curve you look at. In the Treasury bills, the yields have gone lower while bond yields have remained steady even after the repeal of the rate cap, as this had already been priced into the market,” said Mr Ogutu.

Bonds are the biggest asset class in the capital markets at Sh2.84 trillion, and their steady returns in recent years has made them a favourite of the pension industry, and to a large extent the banking industry.

Ben Woodhams, managing director at property managers Knight Frank Kenya, said real estate, especially the commercial segment, posted positive returns despite a slowdown in the property sector.

“Yields in the real estate market have remained stable even in the face of weaker reported transactions, averaging eight per cent for office, 8.5 percent for industrial, nine percent for retail and 5.5 percent for prime residential property,” said Mr Woodhams.

Real estate has been one of the country’s fastest growing sectors in the last 15 years, with returns from property outpacing equities and government securities.

The sector has, however, suffered slow growth in sales and rental prices recently due to a huge stock of unsold units.

The depressed property market was worsened by credit access constraints under the environment where interest rates were under government control and job losses witnessed across many sectors, which led to unprecedented seizures of homes linked to loan defaults.

Central Bank of Kenya (CBK) data shows that the average savings interest fell to 4.58 percent in September compared to 6.33 percent in the same month last year when Parliament made changes to the banking law and removed a clause compelling banks to pay depositors at least 70 percent of base lending rate.This means customers have lost Sh1.75 for every Sh100 in their savings accounts since the law was changed.

Interest paid on large deposits from cash-rich firms such as Safaricom , which usually have room to negotiate higher rates, on average dropped to 6.98 percent in September from a peak of 8.26 percent in January last year.

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