Bonds, real estate return highest gains in tough 2015

Real estate investors and buyers of Treasury and corporate bonds emerged the biggest gainers. PHOTO | BD GRAPHIC 

By GEORGE NGIGI, gngigi@ke.nationmedia.com

In Summary

• Stock market punters burn their fingers as share prices at the bourse took a nose dive in a year when the fear of interest rate hike by the US Fed also depressed commodity prices.
• Sixteen listed companies have already issued profit warnings — pointing to a season of low dividend payouts for investors.
• Real estate investors were the biggest beneficiaries of the fickle markets, taking home double-digit returns by some estimates.
• All banking, manufacturing and commercial stocks were on the losing side.

Real estate investors and buyers of Treasury and corporate bonds emerged the biggest gainers in a year of unpredictable economic outcomes that saw commodity prices and the stock market take a nose dive.

Most of the more than 1.2 million stockholders at the Nairobi Securities Exchange (NSE) were on the losing side, with only a dozen of the 64 listed companies closing at higher trading prices than they opened the year.

A sharp interest rates increase at the end of October offered a short window for cash holders to invest in fixed deposits and Treasury Bills, booking returns of up to 23 per cent.

Real estate investors were however the biggest beneficiaries of the fickle markets, taking home double-digit returns by some estimates.

“The year has been good for real estate, we can’t complain. I would put the returns at an average 15 per cent across the different areas we operate in,” said the Optiven chief executive George Wachiuri.

Optiven is a real estate company that deals in selling serviced land parcels in Machakos, Kajiado, Naivasha and Eldoret. The dealer was named the best company in the Business Daily’s Top100 competition for 2015.

READ: 'I failed 15 times before I built my Sh1bn real estate firm'

The Kenya National Bureau of Statistics (KNBS) data shows that rent prices for two-bedroom flats, popular with mid-sized families, had risen by 7.5 per cent as at the end of November, while three-bedroom maisonettes, preferred by higher-income tenants, rose 4.6 per cent.

The two-bedroom bungalow was up 5.2 per cent, according to the KNBS data.

READ: Two-bedroom house tenants feel 7.5pc rent rise pinch

Property prices, however, remained nearly flat, with Kenya Bankers Association Housing Price Index (KBA-HPI) for the third quarter of 2015 rising to 1.26 per cent from 0.2 per cent growth in the second quarter.

Mind-boggling returns

“Real estate has served up mind-boggling returns over the past decade. However, here again you need to be smart now, the easy pickings are gone,” said investment analyst Aly Khan Satchu, chief executive of data vending firm, Rich Management.

He said it is now advisable to look for land beyond the city centres where prices are still low but with a high growth potential.

The stock market has been outperforming the other asset classes since rebounding from the 2011 bear run. NSE investors made returns of 29 per cent in 2012, 19.2 per cent in 2013 and 3.8 per cent in 2014.

The indicative NSE 20-Share Index however lost 21.9 per cent in 2015 underlining the steep drop in stock prices that saw investor wealth at the bourse as measured by market capitalisation shrink by Sh275 billion.

Sh27bn loss

“Stocks were a rough ride. Bonds did well because they protected value, especially the short end,” said the Canaan Capital managing director Rufus Mwanyasi.

Fourteen billionaire investors with a huge exposure at the bourse chalked up paper losses of Sh27.3 billion, making them among the hardest hit in the stock market bear run that started in March.

READ: Top NSE investors suffer Sh27bn paper loss in market slump

Some of the largest losing stocks at the bourse included Atlas Development which shed 85 per cent, insurance firm British American down 56.6 per cent and Housing Finance sliding 52.4 per cent.

Agriculture and telecommunications, which has only giant telecom Safaricom, was the only segment to have posted gains.

All banking, manufacturing and commercial stocks were on the losing side. The banking segment was the greatest loser, with the market value of the 11 listed lenders declining by a combined Sh215 billion.

The value of shares listed on the NSE declined to Sh2 trillion from Sh2.3 trillion at the beginning of 2015.

Sixteen listed companies have already issued profit warnings, indicating that they expect their earnings to decline by at least 25 per cent — pointing to a season of low dividend payouts for investors.

Companies have attributed the lower earnings to the rise in cost of loans and paper losses arising from the equities market slump.

During the high interest rate period, cash holders were offered high fixed deposit rates by banks desperate to lure depositors from government securities.

The opportunity to lock in the high returns was however momentary, lasting for six weeks, as interest rates fell as fast as they had shot up.

Yields on Treasury Bills and bonds remained higher than the 8.5 per cent offered at the beginning of the year. The high rate however makes it difficult for investors to sell their securities in the secondary market, which made exchange of the papers at the bourse un-attractive.

Anticipation of the US Federal Reserve interest rate hike hit the commodities market with most investors opting out, resulting in depressed prices.

Offshore investments

“Raising of the Fed rate affected all classes because the less the money available for trading the lower the prices,” said Johnson Nderi, corporate finance and advisory manager at ABC Capital.

Offshore investments were also said to have been underwhelming due to other emerging markets facing similar challenges like Kenya— again attributed to the Fed rate hike. Investors who put their money outside the country early in the year however reaped forex gains on repatriated cash following significant depreciation of the shilling.

The currency depreciated to about 106 units against the dollar before stabilizing at the 101/2 range.

“The shilling will outperform in 2016 so my trade would to be long shilling assets financed via the dollar. I think you will get a double whammy - absolute returns plus a currency related kicker,” said Mr Satchu.