The rise in interest rates in Kenya is projected to drive more investors to short-term fixed-income investments in the 3rd quarter of 2023, Old Mutual Investment Group’s (OMIG) Q2 2023 Economic Outlook has revealed.
The outlook is a quarterly OMIG Kenya Investments Discussion Forum on the prevalent macroeconomic environment and its impact on available investment options for both retail and institutional investors.
OMIG Group MD for East Africa Anthony Mwithiga noted that investors will be seeking to invest in instruments providing higher returns like Money Market Funds and other short-dated interest-bearing securities that mature quickly and allow them to re-invest on higher interest rate yielding bracket.
“It is better to get 12 per cent for a 91-day investment than 13 per cent per year for a 20-year investment, you get more of your return sooner,” said Mwithiga.
He added: “While investors should expect higher returns from short-term securities, the outlook reminds investors in long-term securities to expect volatility on their historical longer-dated fixed income investments like bonds, whose value may fluctuate downwards due to increased interest rates.
OMIG Kenya Head of Research and Listed Equities Steven Maleche intimated that investors need to invest in short-term interest earning assets that are likely to compensate for the current rising inflation.
He noted that current stock market valuations were much lower than they have been in five years in spite of impressive show by companies in the telecommunication, banking and manufacturing sectors.
"This is a year of looking at the absolute performance, so investors are looking at where positive returns can be made,” said Maleche.
The outlook urged institutional investors to consider alternative investments, which tend to be negatively correlated to traditional investments like equities and bonds in an effort to diversify.
Alternative investments include ventures in infrastructure, agriculture, healthcare and education sustain returns in volatile periods due to stable contractual obligations, long term nature and steady demand for the services.