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See the billion-dollar sectors that profited investors in Kenya the most in 2023 so far

Kenyan shilling notes
  • Kenyan government bonds outperform real estate and stocks on the Nairobi Securities Exchange (NSE) in the first half of 2023. 
  • Investors flock to government bonds due to rising inflation, declining shilling, and challenges in obtaining loans on the open market. 
  • The real estate sector struggles with stagnant rental and sales returns, while cash investments see gains in both hard and local currencies.

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).

According to a report by Business Daily (a Kenyan business publication), of the various asset classes in the six months leading up to June, returns on government bonds sold at auction this year have increased to an average of 13.64% from a 12.83% return during the same time previous year.

The seven-year infrastructure bond that was sold last month, which also has the extra benefit of being tax-free, is returning investors at a rate of 15.84%, which is the highest return on a bond released this year.

Returns on Treasury notes have also increased since the beginning of the year, rising to an average of 12.0% for all three tenors in the most recent auction. These returns have increased as a result of investors taking into account factors such as rising inflation, a declining shilling, and the government's challenges in obtaining loans on the open market due to cost-related issues.

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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. All three indices remained in the red, with the All Share index leading the pack at negative 16%. The NSE lost Sh320 billion in investor capital during the first half of the year, compared to Sh653.7 billion a year earlier.

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 to sell. The real estate sector, which provides flat rental and sales returns, has struggled to gain any impetus 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 research by realtors HassConsult, rental returns in Nairobi were minus 0.5% in the first quarter of this year, down from one percent in the same period the previous year. Compared to a rise of 2.8% in the first quarter of 2022, sales prices increased by 0.02 %.

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. Between now and then, the shilling has lost value versus the British pound and the euro by 14.3% and 14.1%, respectively, suggesting that owners of these currencies have also profited significantly.

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Due to increased interest rates and soaring stock markets in Western nations, 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, stocks, and real estate, therefore the huge profits have little effect on institutional investors' entire portfolios, such as pension funds.

According to data from the Central Bank of Kenya (CBK), fixed deposits in banks offered an average interest rate of 7.57% in the first four months of this year, up from 6.55% at the same time in 2022. Even while the rates are below the 8.5% six-month average inflation rate, they have been growing as banks compete for deposits and face rising interest rates on government securities.

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