Kenyan pension schemes lost over Ksh11 billion ($76.92 million) in bond and equity investments in the three months to June 2023, due to rising interest rates, which lowered valuations and share prices on the Nairobi Securities Exchange (NSE).

A quarterly survey by actuarial services firm Zamara Consulting shows that fund management firms are feeling the heat of their heavy exposure to bonds and equity investments at a time when a mixture of global and domestic macroeconomic factors have weakened the local business environment.

The study, which sampled 423 schemes with a total of Ksh1.05 trillion ($7.34 billion) of assets under management, reveals that the schemes which usually invest employees’ retirement funds, lost about Ksh4.89 billion ($34.19 million) and Ksh6.74 billion ($47.13 million) in bond and equity investments respectively, during April-June.

Government bonds have become more attractive because of the state’s huge appetite for borrowing to fund its operations and plug the Ksh718 billion ($5.02 billion) budget deficit for the current fiscal year (2023/24).

But the bond valuations have been hit by the Central Bank’s monetary policy tightening stance seeking to anchor inflation expectations as the shilling dropped to its lowest against the Dollar trading at Ksh143 against the greenback last week.

The Central Bank Monetary Policy Committee retained the Central Bank Rate at 10.50 percent, noting that the impact of the policy rate increase in June to anchor inflationary expectations was still transmitting in the economy.

Significant proportion
According to the Zamara survey findings which were released last week the fund management schemes invested 78.3 percent (Ksh822.15 billion ($5.74 billion) in bonds and 14.6 percent (Ksh153.3 billion, $1.07 billion) in listed companies during the period under review.

On the other hand, only 5.5 percent (Ksh57.75 billion, $403.84 million) and 1.6 percent (Ksh16.8 billion, $117.48 million) of the funds went into property and offshore investments respectively.

The average returns from bond investments declined to 0.9 percent from 1.6 percent in the same period last year while that from equity investments declined by 4.4 percent compared with a 14.7 percent drop in the same period.

Offshore investments posted 16.1 percent return from a negative return of 15.9 percent during the period under review.

Conservative schemes — which usually hold a more significant proportion of their allocation in fixed income — recorded the least average returns primary due to the adverse effects of rising interest rates on fixed income performance and lower offshore allocation.

Shilling-dollar woes
During the period under review, foreign investors removed Ksh1.48 billion ($10.34 million) from the country through the sale of shares on the stock market as equity turnover declined by 68 percent to Ksh14.4 billion ($100.69 million), from Ksh44.82 billion ($313.42 million) recorded in the first quarter (January-March), according to data from the Capital Markets Authority (CMA).

Bond turnover fell by 9.3 percent to Ksh147.4 billion ($1.03 billion) from Ksh162.51 billion ($1.13 billion) while market capitalisation fell by five percent to Ksh1.66 trillion ($11.6 billion) from Ksh1.75 trillion ($12.23 billion).

The total value of bonds traded during the second quarter (April-June 2023) decreased by 9.3 percent to Ksh147.4 billion ($1.03 billion) from Ksh162.5 billion ($1.13 billion) in the first quarter.

“It is evident that the investment landscape is influenced by various factors, ranging from geopolitical events to climate change concerns,” said Wycliffe Shamiah, CMA chief executive, through the Authority’s quarterly statistic bulletin (Q2 2023).

“As we navigate through these dynamic times, it is crucial for investors, policymakers, and stakeholders to stay informed and adapt to the evolving market conditions.”

The shilling depreciated by 5.8 percent against the Dollar during the quarter (April-June) to close at Ksh140.5 from Ksh132.3 in the previous quarter (January-March), while average inflation for the first half of 2023 increased to 8.5 percent compared with 6.3 percent in the same period last year.

Foreign investors have also voiced concerns over the dollar shortage in the country, difficulties in accessing short-term loans to shore up their working capitals, restrictions on capital repatriation and high cost of doing business.

In June, American investment advisory firm Morgan Stanley Capital International Inc. dropped Kenya’s listed firms from its latest index review plan over the worsening business environment.

During the first three months of this year foreign investors shifted Ksh13.93 billion ($97.41 million) worth of equity investments from the Nairobi Securities Exchange, Central Bank data shows.