Investors made billions in first six months of 2023

In the first half of this year, investors received better returns from lending to the Kenyan government and purchasing hard currency for investments compared to gains from holding real estate and stocks listed on the Nairobi Securities Exchange (NSE).
The seven-year infrastructure bond sold last month, which also has the added benefit of being tax-free, is returning investors 15.84%, which is the highest return on a bond released this year.
Returns on Treasury notes have also increased this year, rising from an average of 9.8% at the start of the year to breaking the 12% mark for all three tenors in the most recent auction.
These returns have increased as a result of investors taking into account factors including rising inflation, a declining shilling, and the government’s challenges in obtaining loans on the open market due to cost issues.
Even if the losses are smaller than they were in the first half of 2022, the shares market has had challenges due to ongoing foreign investor selling.
Investor wealth on the NSE decreased by Ksh320 billion in the first half of the year, compared to Ksh653.7 billion a year earlier. All three indices stayed in the negative territory, with the All Share index leading the pack at negative 16%.
The capital reallocation to western bonds and stocks, which are regarded as safe havens in times of global instability, is what has driven the foreign investor selling.
“A bigger proportion to fixed income has baked in an aspect of flight to safety. The outlook for other asset classes, such as shares and real estate, has been negatively impacted by the macroeconomic situation entering this year,” according to Churchill Ogutu, an economist with IC Asset Managers (Mauritius).
“In that case, fixed income provides investors with a shelter while they keep an eye on the situation.”
The real estate sector, which provides flat rental and sales returns, has struggled to gain any traction this year, much like the stock market.
The real estate sector, which was previously the best-performing asset class and drew high-net-worth investors like pension funds, has slowed down recently, with the Covid-19 outbreak particularly having a negative impact on sale and rental prices.
According to a research by realtors HassConsult, rental returns in Nairobi were negative 0.5% in the first quarter of this year, down from 1% in the same quarter last year. Sales prices increased by 0.02% vs a gain of 2.8% in the first quarter of 2022.
However, cash investments have seen gains in both hard and local currencies.
Those who have dollar accounts in local banks have benefited from an exchange gain of 12.2%, since the dollar has appreciated relative to the shilling by that amount since January.
In the interim, the shilling has lost value versus the British pound and the euro by 14.3% and 14.1%, respectively, suggesting that owners of both currencies have also profited significantly.
Due to higher interest rates and soaring stock markets in western economies, offshore investments have also generated excellent returns this year, with a first-quarter return of 16%.
However, allocation to these external assets is still minimal in comparison to other assets like fixed income, equities, and real estate, therefore the huge gains have little effect on institutional investors’ entire portfolios, such as pension funds.
According to data from the Central Bank of Kenya, fixed deposits in banks offered an average interest rate of 7.57% in the first four months of this year, up from 6.55% in the same time in 2022.
The rates have increased while being below the 8.5% six-month average inflation rate as a result of banks vying with one another for deposits and with the growing prices for government assets.
However, since banks have become more dependent on wholesale deposits to maintain their lending, small savers did not much benefit from the money market environment as their rate of return has stayed at roughly 3.6%.