Market is now ripe for long-term investments

The global impact of the Covid-19 pandemic, especially the sudden shock to economies has been unprecedented in recent history. 

The severe impact and prolonged spell of the pandemic paint a gloomy picture.  

With the different policies undertaken to ensure a speedy recovery of economies and markets, we are likely to see positive recovery despite new waves of Covid-19 cropping up. 

Major markets worldwide were seen to have regained year-to-date performances at the end of last year, with Standard and Poor’s 500 (S&P) 500 gaining at least 10 per cent and six per cent for the MSCI World Index.

These were major gains as the S&P 500 index had dipped 20.0 per cent in the first quarter of 2020 from 3230.78 to 2584.59 points.

The MSCI World Index also declined 21.4 per cent from 2358.47 to 1852.73 points during the same period. Locally, the benchmark Nairobi Securities Exchange-20 and Nairobi Securities Exchange(NASI) also came down by 25.9 per cent and 20.7 per cent respectively in the first quarter of last year.

As of quarter one this year, the NSE 20-share Index closed the quarter lower at 1,846.41 points, a 1.2 per cent decrease from the preceding quarter’s figure of 1,868.39 points. 

The All-share index closed the quarter at 158.62 points, a 4.3 per cent increase from last quarter’s figure of 152.11 points driven by gains recorded by large-cap stocks such as BAT Kenya, KCB Group, Safaricom and Cooperative Bank. The gains were, however, weighed down by losses recorded by stocks such as Diamond Trust Bank, ABSA Bank and NCBA Group. 

But there is a reason for optimism, for instance from the several policy measures that the government has undertaken to mitigate the pandemic’s economic impact, including quantitative easing measures and the usual monetary easing through interest rate cuts.

Banks have also restructured customer loans to ease liquidity pressure on individuals and businesses. 

The anticipated rollout of vaccines against Covid-19 sent global stock markets rallying on the back of optimism that the economic damage from the coronavirus crisis could be limited if populations are widely protected. 

In addition, positive news regarding vaccines is likely to trigger a reallocation of funds from safe investments such as Fixed Income and Gold to the equities market as investors view low valuations currently as a signal to enter the market. 

Digitisation is instrumental in building resilience to the pandemic, supporting payment systems, and helping businesses interface with clients as health guidelines limit in-person interactions.

The adoption of tech-driven initiatives has bridged the digital divide even in the financial markets. This has been seen especially with the integration of ICT and the financial sector in developing innovative ways to enhance ease of operations and communication, thus providing investors with access to services. 

For instance, Old Mutual Securities has an elaborate online shares trading platform that enables clients to conduct trades personally and even access valuable market research.

In addition, the Nairobi Securities Exchange took strides to ensure seamless flow of trades by investing in a new state-of-the-art broker connectivity solution to help ensure a stable, secure and resilient network infrastructure for securities trading is achieved.  With the wider rollout of the vaccine still on course, market sentiment is expected to improve as well as the flow of funds to the equities market.

As countries continue to contain the pandemic, financial markets are starting to regain a footing and sectors such as telecom and banking will are the most likely to bounce back from the pandemic at a faster rate. 

Local investors should look at the currently available market opportunities and take positions with ease as digitisation has made it possible for market trading to be conducted.

A recent economic report by the International Monetary Fund points to a positive economic recovery, signaling a capital shift to the local market from foreign markets by investors, thus rallying market activity.