The move to fixed income during the Covid-19 pandemic boosted bond transactions on the Nairobi Securities Exchange to a record $ 8.37 billion last year, almost seven times the value on the Nairobi Securities Exchange Stock market traded stocks.
Both retail and institutional investors have sought higher guaranteed returns on government bonds as returns from other asset classes such as stocks and cash remain low.
The government’s big appetite on bonds also spurred additional trading in high-issue bonds in the market, raising fears that the private sector will be starved of credit.
Last year the Treasury Department sold 6.76 net Billion US dollars in new bonds that were then actively traded on the stock exchange.
“The bond market exceeded the 2020 figures by 38.44 percent to 8.37 $ 6.05 billion in 2020; This is a record high in recorded trading activity. Stock sales fell 7.58 percent to $ 1.2 billion, down from $ 1.29 billion last year, “said the NSE.
The rise in bond sales brought the exchange operator and the Stock brokers who do the trades get more commissions on bonds. The bond market was also seen as a haven for investor money after the pandemic hit the country and the economy contracted 0.3 percent in 2020.
Retailers in government bonds – Consisting of Saccos, public and private companies, support groups, educational institutions, religious organizations, and individuals – increased their holdings of securities by $ 867.7 million to $ 2.17 billion over the year.
The However, stocks became riskier and less attractive to investors as publicly traded companies posted lower profits and cut dividend payouts to keep them cash in a tough operating environment.
The stock market struggled to break free from the bear market That has kept prices relatively low since early 2015.
During each of the past four years the bond market has set new records in annual trading volume n, record annual equity revenue remains at $ 1.88 billion in 2014.
Meanwhile, money market funds continued to outperform all other asset classes for the second year in a row due to their higher returns in 2021 / p>
In the reporting period, the Cytonn Money Market Fund achieved the highest effective annual return of 10.5 percent, compared to an industry average of 8.8 percent.
The other asset classes in particular recorded improvements from 2020, with NASI the biggest winner, rising from 8.6 percent in 2020 after falling 14.1 percentage points to a return of 5.5 percent as investors sought to recover from stock prices from last year’s lows benefit. In addition, the gradual economic recovery after the economy reopened contributed to the improvement.
In 2021, the demand for Treasury bill auctions was relatively low, with the average subscription rate being 94.1% compared to the Subscription rate of 130.9 percent in 2020.
This was due to investors shifting their interest to the bond market in search of higher returns. On the other hand, there was strong demand for the primary auctions of government bonds in 2021, with the subscription rate averaging 147.6 percent and thus above the average subscription rate of 130.6 percent in 2020, which is partly due to the ample liquidity in the money market is.
The market preferred medium-term bonds to hedge against duration risk.
“We expect the economic recovery of 2021 to continue into 2022 expect that Interest rate environment remains stable as the government continues to reject expensive bids on the auction market to keep interest rates low, ”said Stellah Swakei, Research and Investment Assistant at Cytonn Investments.
In 2021, the Kenyan stock market rallied , with NASI, NSE 25 and NSE 20 gaining 9.5 percent, 9.8 percent and 1.6 percent, respectively.
The performance of the stock market over the course of the year was shaped by the price gains of shares n such as Equity Group, ABSA Bank Kenya, British American Tobacco Kenya (BAT), Kenya Commercial Bank (KCB) and Safaricom Plc. However, profits were weighed down by losses on bank stocks such as Diamond Trust Bank Kenya (DTB-K), Standard Chartered Bank (SCBK) and NCBA Bank.