Securities are your best 2020 investment bet

The Nairobi Securities Exchange. FILE PHOTO | NMG Coming from a year that offered mixed fortunes to investors, questions abound over the most prudent vehicle that will offer investors the best returns for 2020 – a year which, from the onset, projects a façade similar to last year’s.

To settle on the most appropriate investment vehicle, we must consider the macro-economic indicators for the coming year to decipher what they portend for the investment space.

First, the economy is expected to post a real Gross Domestic Product (GDP) growth of 5.7percent; signifying a stagnation in growth from last year. Secondly, the shilling is projected to remain stable, trading against the greenback at an average of between 100 and 104. Thirdly, private sector credit growth is expected to post a cautious recovery following the repeal of interest rate caps.

However, risks abound with the expected aggressive government domestic borrowing in the first half of the year (crowding out private sector), a rise in the fiscal deficit and depressed private consumption on the back of cost cutting initiatives by the private sector.

Both globally and locally, we are in an era of increased financial markets volatility and heightened geo-economic uncertainties. Nonetheless there remains various investment options that still represent value following heavy investment in strengthening their fundamentals, thus trading at substantial discounts to their value.

Strong counters

On average, our capital markets are still trading at attractive multiples despite the rally of 2019, which primarily represented a recovery from the massive sell off in 2018. The Nairobi All Share Index (NASI) posted a return of 18.5 percent to close at 166.41 from an almost similar, but negative return of 18 percent in 2018.

Despite the rally, valuations are still attractive for some of the counters especially fundamentally strong counters that missed out on the market rally of late last year despite their attractive prices. Current local market pricing also compares favourably to historical averages.

The market is likely to see a bounce this year for some of the large corporates with strong earnings growth, which will drive activity on the bourse. Blue chip counters are poised to record strong earnings growth on the back of capacity expansion and introduction of new products.

Most of the opportunities are evident in the large banks. The insurance sector has immense potential due to low insurance penetration, but challenges undermine it including fraud and price undercutting. For this sector, considerable technological investments […]

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