Fixed income securities touch new high at NSE – The East African
Retail and institutional investors have been seeking higher guaranteed returns on the Nairobi Securities Exchange. PHOTO | FILE
The move to fixed-income investments in the Covid-19 pandemic period raised transactions in bonds at the Nairobi Securities Exchange to a record $8.37 billion last year, nearly seven times the value of equities traded on the bourse.
Both retail and institutional investors have been seeking higher guaranteed returns available from government securities, as earnings from other asset classes such as equities and cash deposits remain low.
The government’s large appetite for debt also fuelled the additional trading activity on bonds with the high number of issuances introduced into the market, raising fears that the private sector is being starved of credit.
Over the past year, Treasury sold a net of $6.76 billion in new bonds that were subsequently traded actively at the bourse.
“The bonds market outpaced the 2020 numbers by 38.44 percent to $8.37 billion from $6.05 billion registered in 2020; this is a record high in trading activity recorded. Equity turnover declined by 7.58 percent to $1.2 billion, from $1.29 billion posted the previous year,” said the NSE.
The rise in bond turnover generated more commissions for the bourse operator and the stockbrokers who handle the trades in debt securities. The bonds market was also seen as a haven for investor cash after the pandemic hit the country and contracted the economy by 0.3 percent in 2020.
Retail traders in government bonds — comprising Saccos, listed and private companies, self-help groups, educational institutions, religious institutions and individuals — increased their holdings of the securities by $867.7 million to $2.17 billion during the year.
However, equities became riskier and less attractive in investors’ eyes, as listed firms recorded diminished profits and cut dividend payouts to preserve cash in a difficult operating environment.
The shares market has struggled to break free of the bear run that has kept prices relatively low since early 2015.
While the bonds market has set new annual traded volume records in each of the past four years, the record annual turnover for equities remains the $1.88 billion traded in 2014.
Meanwhile, money market funds continued to perform better than all the other asset classes in 2021, for the second year in a row, due to their higher returns.
During the period under review, the Cytonn Money Market Fund had the highest effective annual yield of 10.5 percent, compared with an industry average of 8.8 percent.
Notably the other asset classes recorded improvements from 2020 with NASI being the largest gainer having increased by 14.1 percentage points to a return of 5.5 percent from a decline of 8.6 percent in 2020, as investors sought to profit from the recovery in stock prices from last year’s lows. Additionally, the gradual economic recovery following the reopening of the economy contributed to the improvement.
In 2021, there was relatively low demand for Treasury-bills auctions as the average subscription rate came in at 94.1 percent, down from the 130.9 percent subscription rate recorded in 2020.
This was due to investors shifting their interest to the bond market in search of higher yields. On the other hand, primary Treasury-bond auctions in 2021 were on a high demand, with the subscription rate averaging 147.6 percent, which was higher than the 130.6 percent average subscription rate recorded in 2020, partly attributable to the ample liquidity in the money market.
The market preferred the medium-term bonds, in a bid to hedge against duration risk.
“We expect the economic recovery seen in 2021 to continue in 2022. Additionally, we expect the interest rates environment to remain stable as the government continues to reject expensive bids in the auction market in an effort to keep the rates low.” said Stellah Swakei, a Research and Investment Assistant at Cytonn Investments.
In 2021, the Kenyan equities market gained, with NASI, NSE 25 and NSE 20 increasing by 9.5 percent, 9.8 percent and 1.6 percent, respectively.
The equities market performance during the year was shaped by gains recorded by stocks such as, Equity Group, ABSA Bank Kenya, British American Tobacco Kenya (BAT), Kenya Commercial Bank (KCB) and Safaricom Plc. The gains were however weighed down by losses recorded by banking stocks such Diamond Trust Bank Kenya (DTB-K), Standard Chartered Bank (SCBK) and NCBA Bank.
He faces charges of genocide and crimes against humanity.
He urges Mr Odinga to concede defeat and contain his supporters.
