According to the World Bank's projection of the growth of the economy of Kenya, the economy of the country might grow by about 1.5% in 2020 due to the devastating effects of the COVID-19 pandemic. At the time this article was written, over 13,000 confirmed cases of COVID 19 had been reported in Kenya. Massive layoffs have been experienced in various sectors such as aviation and hospitality even as our economy slowly revs up following the easing of some of the preventative measures that have been put in place by the government.
It is against the backdrop of this grim reality that one needs to consider the emerging or existing investment opportunities. According to Margaret Kimani (a seasoned investment banker by training who spent over 9 years in Wall Street in her early banking career in Boston) who currently Heads the Women and Youth Banking Unit at SBM Bank Kenya, investing now calls for a careful balance between taking a well-calculated risk and using diversification strategies. Margaret affirms the optimism expressed in Albert Einstein's popular saying that, "Amid every crisis, lies great opportunity." She believes that even in the middle of this devastating health crisis there are still many investment opportunities. There are opportunities for individual Kenyan investors to invest locally in the Nairobi Stock Exchange and Treasury Bills which would be a departure from the norm. There is also room for our local SMEs to venture into investing their “sweat capital” in local businesses that never made sense in the past. For instance, local manufacturers of PPEs and suppliers of locally-made health equipment stand a chance to grow significantly during this pandemic. Investors and entrepreneurs stand a chance to reap off great returns by investing in such companies.
Margaret was super excited and impressed by a recent article in the Daily Nation on 15th July 2020 on the innovativenessof Kenyan Juakali sector which featured two of our very own "Juakali" sector artisans who had invested their youthful energy, innovation, and capital towards making hospital beds which are currently in high demand. The Government of Kenya has placed an order for 500 beds from these two young innovators. "This is a significant moment for me as a Proud Kenyan citizen who believes that Kenya does not need aid. Instead, what we need is an enabling environment and continued support for our local innovators to manufacture locally and trade." Ms. Margaret adds.
At State Bank of Mauritius (SBM Bank), we are supporting Kenyan MSMEs and SMEs who have come up with such groundbreaking innovations.SBM Bank provides the financial muscle and guidance that local Kenyan industries need to thrive during this pandemic and beyond. We have many success stories of young people within our wide network of 52 branches in the country. SBM Bank family takes pride in being “Merchants of Hope" as we continue to stay open to serve our esteemed customers. We restructured loan facilities for clients who have been heavily affected by COVID-19 such as hotels and travel firms to protect their investments.
Common myths that guide investment decision sometimes lead to costly mistakes
For some people, investing is like gambling, a myth that must be demystified. Based on this premise, their investing is usually guided by sheer luck, with little or no data to base their investment strategy and process. Such investors get easily excited by the "get-rich-quick" schemes reminiscent of the infamous quail business that led to massive losses. The second most common myth revolves around the “crowd following” mentality. Some investors argue that the crowd cannot be wrong hence are guided by the popularity of a particular investment option. Peer pressure is not only limited to teenagers when it comes to investments. The problem with following the crowd mentality is that emotions are often the main guiding factor. Some investors are still convinced that investments such as stocks are get-rich-quick schemes hence they are always on the lookout for quick speculative buys and quick sales that will make them profits. Investments need both time and patience just like planted tree seedlings so "microwave" overnight success is not guaranteed in the investment arena. Another common investment myth is that most people think you have to be a millionaire to start investing which is absolutely not true. In Kenya, you can invest with as little as 3,000 Kenya shillings in the Nairobi Stock Exchange or Government Bonds through M-Akiba.
Before you invest, particularly in this COVID 19 season, there are a few things to consider
As with every journey, investment should be guided by clear goals. The goals should be SMART(Specific, Measurable, Attainable, Realistic, Timely) with each goal having a specified time frame. After setting your investment goals, you can embark on working on them progressively. Before making any decision to invest, it is important to research various investment options available such as stocks, mutual funds, derivatives, and treasury bonds. This should be done by strategically aligning one's investment goals with their risk appetite, your current age as well as investment options available. The risks associated with each type of investment option should be clearly understood. Given the uncertainty associated with the COVID- 19 pandemic, investment options that are regulated by the regulator such as the Capital Markets Authority(CMA) in Kenya would be better than investment options that are either not properly registered or regulated. This gives you comfort as an investor in matters revolving around the corporate governance of the company you are investing in.
Are there sectors that might survive and/or thrive during, within, and beyond the COVID 19 crisis?
As the number of confirmed COVID-19 cases continues to rise, the use of physical cash continues to be discouraged. The use of mobile money has been increasing as more people opt to use mobile money to purchase goods and services in what we in the banking sector are referring to as #GoCashless. In addition to this, there has been an increase in the use of online platforms to purchase essential goods and services. In Africa, Fintechs have shown much promise with over 50% of the over $1 billion that was raised as venture capital in 2019 within the continent being directed towards financial technology companies. As online lending and payment processing systems continue to grow, investing in this sector is bound to be profitable in the future.
- Digital Education
The 2020 School learning calendar in Kenya has been suspended but this does not mean that online learning has been suspended in Kenya. The Kenya Institute of Curriculum Development (KICD) continues to offer learning materials for learners across the country through digital platforms. Eneza Education has partnered with Safaricom to offer the Kenyan government-accredited curriculum that is tailored for feature phones through Education Technology(EdTech). In Tanzania, an online platform known as Ubongo Toolkits offers a large library of early childhood learning materials that cater for learners between the ages of 0 and 14 years. Investing in such edtech driven companies can reap profitable returns in the new normal.
- Health sector
There are investment opportunities in digital health solutions that had been developed before or during the pandemic. Currently, several pharmaceutical applications enable patients to consult directly with doctors and pharmacists online, fill in their prescriptions online, and have their drugs delivered wherever they are. Most hospitals are currently allowing patients to have their prescriptions filled through online platforms. The COVID 19 pandemic is not only revealing the weaknesses of the health care system in Kenya but also presenting opportunities that would be ideal for long term investors in the future.
Are the stock markets viable during the COVID 19 season and beyond the pandemic?
No one can predict with 100% certainty what the stock market will look like in the near future. The effects of the pandemic have been evident in the decline of the value of some of the stock prices, but this does not mean that this decline is permanent. A common approach to investing in stock can be summarized in Warren Buffet's favorite quote "always buy low, sell high".
The opportunities presented by the current low stock prices ought to be evaluated carefully and a decision made based on facts and figures. When investing in the stock market, a multi-layered approach is advisable. In such an unprecedented crisis, it is advisable to structure your investment strategy in the 4 bucketed approaches below: -
- Bargain basement bucket: These are blue-chip companies that will thrive beyond the current pandemic. The stocks in these companies are currently priced at unbelievable discounted prices e.g. travel companies such as Expedia.com and Booking.com
- Safe stocks: These are companies whose products have been on high demand since the pandemic hit the globe e.g. Safaricom (data & home fiber), Adobe, Amazon, Jumia and Twiga Foods
- Distressed Bet buckets: These are investments that could potentially go under but have the potential of turning around beyond the pandemic. Examples include airlines such as Kenya Airways (KQ) and PPE-Manufacturing companies
- "Bet on behavior change" bucket: These are emerging companies whose stock price has risen as a result of the need for their products or services e.g. Instacart, Facebook, and Zoom Call…. now that the world has quickly moved online. The stock price of these companies has skyrocketed since March 2020
Warren Buffett once said that it is wise for investors to be "fearful when others are greedy, and greedy when others are fearful." This statement is somewhat of a contrarian view on stock markets and relates directly to the price of an asset: when others are greedy, prices typically boil over, and one should be cautious lest they overpay for any particular asset that subsequently leads to anemic returns. When others are fearful, it may present a good value buying opportunity. Since the price is what you pay, and value is what you get, paying too high a price can decimate your returns on investments. After all, in finance, we say no pain no gain. There is nothing in this life that does not have a risk associated with it including life itself…don’t you agree?