Current market conditions best for long-term investors

The global impact of coronavirus menace, especially the sudden shock to economies, has been unprecedented in recent history.

The severe effect and prolonged spell of the pandemic paints a gloomy picture. With different policies undertaken to ensure speedy rebound of economies and markets, we are likely to see positive recovery despite new waves of the scourge cropping up.

Major markets worldwide were seen to have regained year to date performances as at the end of last year with S&P 500 gaining at least 10 percent and six percent for the MSCI World Index.

These were major gains as the S&P 500 index had dipped 20 percent in the first quarter of 2020 from 3230.78 to 2584.59 points. The MSCI World Index also declined 21.4 percent from 2358.47 to 1852.73 points during the same period.

Locally, the benchmark NSE-20 and NASI also came down by 25.9 percent and 20.7 percent respectively in the first quarter of 2020. As at quarter one 2021, the NSE 20-share Index closed the quarter lower at 1,846.41 points, a 1.2 percent decrease from the preceding quarter’s figure of 1,868.39 points.

The All-share index closed the period at 158.62 points, a 4.3 percent increase from last quarter’s figure of 152.11 points driven by gains recorded by large cap stocks such as BAT Kenya #ticker:BAT, KCB Group #ticker:KCB, Safaricom #ticker:SCOM and Cooperative Bank #ticker:COOP. The gains were, however, weighed down by losses recorded by stocks such as Diamond Trust Bank #ticker:DTK, ABSA Bank #ticker:ABSA and NCBA Group #ticker:NCBA.

Several policy measures were undertaken by governments to mitigate the pandemic’s economic impact including quantitative easing measures such as interest rate cuts. Banks have also restructured customer loans to ease liquidity pressure on individuals and businesses.

The rollout of vaccines against Covid-19 sent global stock markets rallying on the back of optimism that the economic damage from the coronavirus could be limited if populations are widely protected. In addition, positive news regarding vaccines is likely to trigger a re-allocation of funds from safe investments such as fixed Income and gold to equities as investors view low valuations currently as a signal to enter the market.

Digitisation is instrumental in building resilience to the pandemic, supporting payment systems, and helping businesses interface with clients with health guidelines limiting in-person interactions.

Adoption of tech-driven initiatives has bridged the digital divide even in the financial markets. This has been seen especially with integration of ICT and financial sector in developing innovative ways to enhance ease of operations and communication thus providing investors with access to services at hand thus easing of physical movement or interactions.

For instance, Old Mutual Securities has an elaborate online shares trading platform that enables clients to conduct transactions personally and even access valuable market research.

In addition, the Nairobi Securities Exchange took steps to ensure seamless flow of trades by investing in a new state-of-the-art broker connectivity solution to help ensure a stable, secure and resilient network infrastructure for securities trading is achieved.

With the wider rollout of the vaccine still on course, market sentiment is expected to improve and expect flow of funds to the equities market.

As countries continue to contain the pandemic, financial markets are starting to regain footing and sectors such as telecom and banking are most likely to bounce back from the pandemic at a faster rate.

We believe local investors should look at the current available market opportunities and take positions with ease as digitisation has made it possible for market trading to be conducted.

A recent economic report by IMF points to a positive economic recovery signalling a capital shift to local market from foreign markets by investors thus rallying activity.

Mburu is a research analyst at Old Mutual Securities