Investment Management Firm ICEA LION Asset Management on Tuesday 12th July presented its 3rd Quarter 2022 Investor Pulse which shares some practical tips on investing in tough times.
According to George Kamau, Senior Portfolio Manager at the fund manager, the world is currently grappling with a possible global recession emanating from stifled demand, rising inflation, supply chain disruption and geopolitical tensions.
“This coupled with domestic challenges of poor rainfall and political uncertainties, puts further pressure on investors to preserve their capital.” says George Kamau.
Kenya’s June inflation rate climbed more than expected and exceeded the ceiling of the central bank’s target range for the first time in almost five years, increasing pressure on policymakers to hike the key interest rate. Several countries across the globe are facing inflationary pressure mainly as a result of supply chain constraints as well as increased household liquidity in developed countries.
George Kamau argues that inflation in Kenya has risen due to these global developments as well as poor rains locally. He projects inflation to decline in 2023 although that is dependent on the effectiveness of monetary tightening policies enacted by central banks.
In its next monetary policy meeting in July, Mr Kamau expects Kenya’s Central Bank to further raise the Central Bank Rate by 0.5 -1% in line with the trend across the globe.
“Transmission of this policy to the real economy will however be subject to the cash-based nature of Kenya’s economy and the cost-push nature of inflation in Kenya.” He says.
The Kenya Shilling has been depreciating against the US dollar and this has been amplified by election-related uncertainty as well as the the war in Ukraine which has led to an increase in the cost of energy and imported foodstuffs.
Mr. Kamau argues that “The depreciation of the KES has partly been caused by global investors seeking refuge in the USD as the world’s reserve currency. Consequently, there is scope for a higher rate regime to develop in the remainder of the year.”
ICEA on Investing in the NSE
According to Mr Kamau, Investors should invest in the Nairobi Securities Exchange (NSE) for the long term and treasury bills, short term bonds and dividend-heavy stocks for the near term.
“The NASI has traded at all-time lows recently but the fundamentals of numerous listed companies remain solid. But, as we face the prospect of a stubborn bear market, investors with a long term investment horizon have attractive entry points being made available under the prevailing environment. For investors with a near term investment horizon, they are better off investing in treasury bills and short term
treasury bonds, as well as high dividend paying stocks.”
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