Ideas & Debate

Here are my investment crystal ball tips for 2021

vaccine

An elderly person receives a flu vaccine in Asuncion, Paraguay on April 15, 2020 amid coronavirus pandemic. PHOTO | AFP

mworia

Summary

  • All East African economies are projected to register positive growth, which raises the probability for strategically positioned and well-run businesses to return a profit.
  • It is projected that Rwanda will register fastest growth of all eastern African countries at 4.2 percent followed by Tanzania (4.0 percent), Ethiopia (3.1 percent), Uganda (2.5 percent), Kenya (1.4 percent), and Eritrea (0.3 percent).
  • The positive regional outlook is important as it means investors with a cross-border focus are not limited in their choices.

It is that time of the year again, when a good number of people firm up their investment decisions and align their goals to their social and economic expectations of the next 12 months. A good majority are still not sure of how to navigate the new normal that is defined by the globally devastating Covid-19 pandemic.

The uncertainties notwithstanding, experts have predicted economic recovery this year, which offers a platform for investors to take carefully calculated risks.

For starters, all East African economies are projected to register positive growth, which raises the probability for strategically positioned and well-run businesses to return a profit.

It is projected that Rwanda will register fastest growth of all eastern African countries at 4.2 percent followed by Tanzania (4.0 percent), Ethiopia (3.1 percent), Uganda (2.5 percent), Kenya (1.4 percent), and Eritrea (0.3 percent), according to data compiled by Statista.

The positive regional outlook is important as it means investors with a cross-border focus are not limited in their choices. The traditional investment options remain equities, treasuries and fixed securities and real estate. Precious metals and offshore assets are also worth looking at for the more sophisticated investors.

Last year’s sell-off at the Nairobi Securities Exchange (NSE) means that valuations at the bourse are irresistibly attractive for long-term investors. It takes a lot of mettle, however, to put money in companies that were so hard hit by the economic shutdowns witnessed last year, lending credence to the age old adage that the stock market is not for the faint hearted.

The NSE-20 share Index plunged by 34.1 percent in 2020 while the Nairobi All Share Index (NASI) lost 8.7 percent to 152.11 points, offering investors heavily discounted multiples compared to historical averages.

Doubts about the prospects for strong business recovery means that the stock market may not record near-term noteworthy price appreciation, but value counters such as telecommunications, financials and industrials remain fundamentally sound choices.

The global rollout of vaccines could see strong recoveries for the tourism and travel industries in the second half of the industry, as restrictions on international flights are lifted. With government revenue still depressed by after-effects of the Covid-19 pandemic, treasury securities remain an attractive option for investors with lower risk appetite.

The Central Bank of Kenya’s Monetary Policy Committee is likely to maintain its benchmark rate at about the current level of 7 percent to encourage the private sector to borrow growth-fueling loans.

This means capital-intensive sectors such as real estate are likely to rebound from last year’s subdued activity. The hospitality industry, which took the biggest blow with the economic shutdowns necessitated by social distancing requirements, will at best record modest recovery this year, as uncertainties still linger.

Globally, the change of regime in the United States could offer more economic stability and offer a platform for rebuilding and re-establishing of global trade.

The dollar is expected to remain strong, which is a disadvantage to net-importing countries such as Kenya that have also suffered a steep erosion of foreign exchange earnings from tourism and agricultural exports. Businesses that quickly adapted to emerging consumer trends will continue to remain resilient and report strong corporate earnings well into the future.

They also have an opportunity this year to capture new markets and offer new products that were offered by rivals in the traditional channels pre-Covid. Greater adoption of technology will increase demand for gadgets by both households and businesses. An increased level of human vulnerabilities will also spur demand for healthcare and related services, and improved appreciation of a cautionary savings behaviour.

Education institutions and affordable housing providers with innovative delivery approach that addresses consumer preferences and their sensitivity to cost and quality are also likely to record growth. From a regional perspective, the expected official coming into force of the Africa Continental Free Trade Area (AfCFTA) will reduce both tariff and non-tariff barriers, easing flow of goods and services across the continent.

Intra-Africa trade is projected to grow from the current 18 percent to 50 percent by 2030, while skilled young people will make more money by selling their services across borders.

The Kenya-US Free Trade Agreement could also be a game changer for local businesses this year, as the American economy offers wealthy customers in a single, harmonised market. Whatever your investment choice this year, remember fortune favours the bold.

Dr Mworia is the CEO of Centum Investment Company Plc. Twitter @MworiaJ