Your best investment bet in this pandemic

General principles of investing still apply even during these pandemic times. In this article, we shall explore important considerations for investors looking to reap the highest gain.

First and foremost, you have to develop or relook your investment strategy as opposed to reacting to various opportunities. An investment strategy is a plan that has your long, medium and short term (SMART) goals. This is important as it acts as a road map in your investment journey.

The more specific the goal, the more likely it is to be accomplished. It should be measurable or mutually agreed upon for accountability, the goals should be achievable meaning there should be a step by step process clearly mapped out, the goals should be realistic or relevant so that they do not discourage you if they are too ambitious and finally, they should be time bound meaning you have a set duration within which to achieve it.

Once you have your goals set, it is important to carry out an evaluation of the various investment options available to you. This is especially important around these pandemic times where a lot of uncertainty has caused many of the counters to take different tangents.

In the stock market, the sector and the positioning of the company during these times is very important as different sectors have been affected differently; some companies are thriving such as Zoom which has really done well and is recorded to outperform several American airlines put together. Locally, the transport, tourism and hospitality sectors have taken some hit, but as the economy opens up, some of the counters are likely to pick up.

Nonetheless, it is important to do your due diligence on the specific counter before you buy shares, specifically interrogating the plans they have around this time as well as the market sentiments and information on their leadership. The financial and telecommunications services companies are also experiencing mixed fortunes depending on their strategies around Covid -19.

When there is uncertainty in the equities market, investors often move to hard assets such as Bonds, Derivatives, Real Estate Investment Trusts and Exchange Traded Funds which help investors hedge their risk

There has been a lot of demand on bonds in the long- term and Treasury bills in the short-term market. It would be worthwhile to consider the effective or actual return on any bond prior to investing, for instance the M-Akiba Bond that is currently open in the secondary Market which offers tax free 10 percent return. The minimum initial investment amount is Sh3,000 with no upper limit but one can top up with as little as Sh10 or Sh100 via mobile money.

There is the Real Estate Investment Trusts (REITS) where someone can purchase REITS which are traded in the same way as shares hence improving liquidity i.e. the ability of getting in or out when you want to buy or sell unlike when dealing with physical land.

Last but not least, one can purchase Exchange Traded Funds (ETFs) which is also a very stable asset class during this time.

ETFs are funds whose performance replicates the spot market, but which allow investors to gain value in a pool of stocks, debt or commodities at more affordable rates.

This understanding then underpins the importance of tracking global performance of the commodity itself, in this case, Gold, which is the only ETF so far in Kenya, originated and sponsored by Absa and launched in March 2017 on the NSE.

The highest ever recorded price of gold was in September 2011 which traded at $1, 920.30 per ounce at a time when the world was still struggling from post financial crisis effects. More recently, Gold has achieved an all-time high in July 2020, primarily as a result of the metal being perceived as a safe-haven asset for investors during a time of shock and uncertainty in financial markets emanating from the Corona virus pandemic. Since markets initially reacted in March 2020, there have been multiple fundamental factors supportive to the investment argument for Gold, noting this year’s ETF net purchases totalling 24.8 million ounces or over $1.1 billion to the end of July – an increase of 30 percent.

The Gold ETF in Kenya has also been rising with a 48.8percent increase since its launch, and 22.4percent increase Year-to-Date. A new high for the cross-listed ETF was recorded at Sh1,860 on July 21, 2020 at the NSE. The demand is expected to continue rising as uncertainty continues around Covid-19 and as investors seek safe, stable asset classes amid the volatile financial markets.

As the NSE, we have noted renewed investor appetite for listed ETFs. For instance, on March 31,2020 the Absa New Gold ETF recorded an all-time high turnover of Sh 66 Million, an 8.15percent contribution to overall day’s turnover of Sh.804 million- the highest since its listing. General devastation and concern specific to the global economy outlook, given the pandemic’s effects on business and employment, have compelled investors to seek out Gold to preserve their wealth.

As the global economy and growth has declined this year, a substantial amount of fiscal and monetary stimulus has been dispensed by central banks globally to support distressed economies – one stimulant being a global low real yield rate environment. This lower interest rate environment has been supportive of Gold as it decreases the opportunity cost of investors holding Gold compared to yield bearing investments.

Another aspect of this stimulus is potential future inflation which often follows stimulus of such expansive scale, and here investors often turn to Gold as a hedge against inflation

Waggema is head of business development, NSE, Mureithi is a strategy and research analyst at NSE