Where to invest in a post-election market

By Steve UMIDHA

Change always presents opportunities to those who are prepared, especially when it comes to investing in a volatile period like now. Post –election markets are naturally rife with investment openings.

When a new administration comes into power, presidents ordinarily give a clear roadmap and in so doing, most investors want to make investments in such a way that they get sky-high returns as quickly as possible without the risk of losing the principal money.

Here are a few possible growth areas (sampled from multiple sources) to look out for after the August 9 polls. Some are fixed-income while others are financial market-linked.

1. Direct Equity or Forex trading: This is basically the process of speculating on currency prices to potentially make a profit. Currencies are traded in pairs, so by exchanging one currency for another, a trader is speculating on whether one currency will rise or fall in value against the other.

In 2020 alone, FX trading witnessed an increase of 300 percent growth globally during the pandemic. In fact, local industry data shows that more than 100,000 traders in Kenya are now actively trading in the Forex market and the number is growing.

2. National Pension System/Scheme: This is a long term retirement – a focused investment product managed by the Retirement Benefits Authority (RBA). It is a voluntary, defined contribution retirement savings scheme designed to enable the subscribers to make optimum decisions regarding their future through systematic savings during their working life. Kenya has in recent years attempted to inculcate the habit of saving for retirement amongst the citizens.In 2018, there were around 1246 registered retirement benefit schemes, of which approximately 10 percent were DB schemes. The majority of schemes are pension schemes as opposed to provident funds.
3. Debt mutual funds: Debt mutual fund schemes are suitable for investors who want steady returns. They include treasury-bills, government securities, commercial paper, and certificates of deposits, money market instruments, securitized debt, and corporate bonds and are naturally less volatile and, hence, considered less risky compared to equity funds.

There are some open end debt funds which can give you an annual return of 9 per cent. Long-term debt funds may give negative returns when interest rates are rising. Short-term debt funds offer a lower return when interest rates fall. Credit risk funds invest your money in bonds of a lower rating. One may lose money if the bond-issuer defaults on principal and interest repayments.

4. Bank fixed deposit (FD): A bank fixed deposit is considered a comparatively safer (than equity or mutual funds) choice for investing in Kenya.

Fixed deposits are similar to savings accounts, except that you cannot access your money for an agreed fixed period like one, three, six months or one year and the longer the money stays in this account, the higher the interest earned. KCB Bank has one of the most competitive fixed deposit rates for local and foreign currencies on various tenors as of April this year.

5. Public Provident Fund: Provident fund means a scheme for the payment of lump sums and other similar benefits to employees when they leave employment or to the dependents of employees on the death of those employees. 

In Kenya the public provident fund is calculated through a deduction which will gradually be raised up to 7.5 percent. The government will provide another 7.5 percent to make it 15 percent. To make the burden lighter for employees, the country tweaked the law in 2021 which saw employees now contribute only 2 percent of their basic pay in the first year.

6. Real Estate/Homeownership: The house that you live in is for self-consumption and should never be considered as an investment. If you do not intend to live in it, the second property you buy can be your investment.

 Home ownership in Kenya has remained relatively low at 21.3 per cent in urban areas compared to other developed countries such as South Africa at 53.3 per cent. This is the ability to build equity over time as you pay off your mortgage. Unlike rental payments, which go to pay your landlord’s mortgage, the payments you make help you to pay off your own home and build a more secure financial future.

7. Taxable Bonds: Individuals and institutions can use bonds for long-term planning, preserving principal, saving, maximizing income, managing interest-rate risk, and diversifying portfolios. Most Treasury bonds in Kenya are fixed rate, meaning that the interest rate determined at auction is locked in for the entire life of the bond. 

If a bond is tax-exempt, the interest income earned on the bond is not subject to taxation by the Kenya Revenue Authority (KRA). If a bond is taxable, the interest income is KRA-taxable. Most investors prefer non-taxed bonds.

8. Gold: Being an alternative currency, gold makes a valuable investment. Throughout history, gold has been seen as a special and valuable commodity. Today, owning gold can act as a hedge against inflation and deflation alike, as well as a good portfolio diversifier. As a global store of value, gold can also provide financial cover during geopolitical and macroeconomic uncertainty.

As an investment, gold won’t offer the same returns as stocks, but it can offer some relief from rising inflation.

9. Climate Change: Many funds and companies are now investing in alternative energies, such as solar and wind power, which can replace fossil fuels. Another possible investment route is green initiatives, such as carbon offsets or electrical vehicles. 

To mitigate the effects of adverse weather patterns, the Climate Change Fund (CCF) was established in May 2008 to facilitate greater investments in developing member countries (DMCs) to effectively address the causes and consequences of climate change, by strengthening support to low-carbon and climate-resilient development in DMCs.

10. Block chain:Blockchain is developed from the distributed ledger concept but enhances public use and security. In general, there are two broad areas for you to consider investing in: cryptocurrency itself and businesses that are developing and implementing new products that use blockchain or distributed ledger technology. 

Cryptocurrency may be a good investment if you are willing to accept it as a high risk gamble which could pay off – but also that there is a strong chance you could lose all of your money. Prices of cryptocurrencies including bitcoin have been falling in 2022 amid a worldwide crypto price crash.