With the new entry of CMA non-dealing licensed brokers EGM and Scope markets, and the only CMA dealing licensed fund Mansa X run by Standard investment bank, all of whom are focused on the global markets stocks, derivatives, commodities and currencies, are Kenyans ready for offshore investing? What do you invest in, how to go about it, and why to invest offshore?
Kenyans are always juggling the offshore investment ball and events over the last few years since 2015 have made this decision increasingly significant. It happens that the NSE listed stocks have hit the proverbial brick wall, and NSE 20 recently registered a nine-year low.
Over time, share prices rise because companies grow their earnings. If you don’t know by now that the Kenyan economy, the consumer, the Shilling etc. are struggling, then you live under a rock. These make growing earnings and hence share prices tricky. The net result is muted stock market performance going forward and slow growth for your wealth.
As a Kenyan you need to hedge against currency depreciation. The Kenya shilling has historically depreciated against developed market currencies at a rate of 6-8% pa. In dollar, pound or euro terms your money is being devalued even faster than you think. So many of our liabilities are priced in developed market currencies that being able to afford these things going forward is going to become increasingly onerous. Think offshore education, travel, German cars, etc. We are an importing economy and most of those transactions are in dollars.
So, what are your options when making these offshore investments?
Broadly, you have two options:
OPTION 1: Physically taking your money offshore i.e. going through the exchange control process, opening up an offshore bank/brokerage account and sending Kenya shillings overseas into a currency of your choice.
OPTION 2: Investing in Kenya shilling-denominated investment options. Your investment and currency exposure is foreign, but you invest in Kenya shillings and get paid out in Kenya shillings i.e. your money does not physically leave Kenya.
Which option you choose depends on your circumstances.
Once the money is offshore/brokerage account, you may do with it as you please i.e. leave it in a bank account in your name or invest it in Exchange Traded Funds, stocks, bonds etc. This may be a daunting decision so consult with a financial planner to get assistance.
So what should you consider?
Whilst investing offshore should primarily be about global diversification, accessing different industries, interest rate and inflation regimes and stronger economies, for Kenyans it is about much more.
If political risk is your primary concern, you need to consider OPTION 1 and actually move your capital offshore. Investing this way means you never have to repatriate or convert the investment back into Kenya shillings unless this is your choice.
If you don’t have a large lump sum, but still want a Kenya shilling hedge investment option, then Option 2 is the way to go. You can always save/invest in this vehicle until you reach the minimums for Option 1 and then move the capital offshore. This is where the Mansa X fund, Scope markets and EGM will fall in (Option 2). They will help you aggregate you capital to Option 1 and then move your capital offshore and/or open a brokerage account for offshore investing.
Whatever your concern, as a Kenyan serious about the financial wellbeing you need to consider a portion of your total portfolio is invested offshore. And always remember, stock market investing is a long term game (5-7 years minimum).
Bricklane Research; twitter @BricklaneCapita