I believe the new year dawned with refreshed hope and new resolutions as usual. 2020 was a special year as the world faced the worst global healthcare crisis since 1918. I am optimistic we won’t have a repeat of it, however, there are a few financial items of interest worth reflecting on especially for any prospect investor.
Indeed, normalcy was affected across various aspects of life. The everyday Life; Lock downs, masking up and regular washing of the hands became the new norm. Equally, the ‘Wall streets’ weren’t spared. World economies were drastically torn as supply chains became disrupted, people lost jobs as well as lives and to date, societies keep grappling with the effects of the pandemic.
Interestingly, amid the COVID-19 unfolds and on matters finance, it’s worth noting all assets were re-priced as uncertainty about the growth of the global economy set in.
It is estimated the world economy contracted by 4.4% in 2020 but it is projected to recover in the coming years. Sub- Saharan Africa region is said to have contracted for the first time in 27 years as it’s estimated the economy dipped 3.3% in 2020. In line with global outlook, it is projected the region would recover in 2021 as demand of commodities is expected to pick up globally in 2021 and as the region’s states puts in supportive policies to boost growth.
Back home things were not different as the economy contracted by 0.4% in the first quarter and 5.7% in the second quarter. The recovery will mainly be dependent on the health situations and the support of both the national and the county governments.
As COVID-19 caused re-pricing of all asset classes, different asset classes registered mixed performance in the year 2020.
On a global scale, equities registered mixed performance with the FTSE 100 being the only loser among the world’s major indices. As the realities of the pandemic set in, the equities dropped in March as investors rushed to sell fearing the worst. Lucky enough the major economies responded with generous fiscal and monetary measures which again boosted the major economies market with most closing the year at record highs.
The equities market in the home was on a downward trend with all the three major indices registering a drop. The NASI, NSE 25, and NSE 20 declined by 8.6%, 16.7%, and 29.6%. Large-cap decliners during the year were Bamburi, Equity Group, Diamond Trust Bank, KCB group, and Standard Chartered. Safaricom gained 8.7% on the year as they benefited from working from home and increased digitization trends.
In Sub –Saharan Africa, equities recorded mixed performance with Nigeria’s NGSEASI being the best performer with a 20.6% gain and Zambia’s LASIZ performing the worst having lost 39.0%.
As uncertainty heightened, investors increased activities in the fixed-income investments in search of stable income channels. During the year, T-bills registered an average oversubscription of 130.3% compared to 118.7% in 2019. The yields on the 91-day, 182- day and 364-day declined to 6.9%, 7.4%, and 8.3% in 2020 from 7.2%, 8.2%, and 9.8% at the end of 2019 respectively. This is attributable to banks shying away from lending to the public due to perceived increased risk.
The Primary T-bond auction was also oversubscribed registering an average of 130.6% compared to 109.7% registered last year.
In the initial stages of the pandemic, the dollar, yen, and Swiss franc appreciated amongst other major economy currencies owing to their safe-haven status. However, as the world economies ditched generous fiscal and monetary policies the safe-haven currencies lost their allure as the risk sentiments improved.
The Kenyan shilling depreciated 7.7% to the dollar closing the year at 109.2 against the dollar compared to 101.3 last year. This was attributable to reduced dollar inflows as tourism and diaspora remittances were effected.
Crypto-currencies saw crazy appreciation in the year as Bitcoin rallied more than 300% while Ethereum raked about 1000%. This was attributable to investors’ view of cryptos as a store of value in the peak of uncertainty. It will be interesting to see how they turn out in 2021.
In 2021, investment decisions will still be shaped by news about the pandemic. If the vaccines will be highly efficacious in reducing the spread, normalcy will return and assets will start appreciating. One thing though, 2020 should be an interesting time to be an investor. Isn’t it the time to take action yet?
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