Money Market Shines As Kenya’s Economy Expected to Hit 5.8% in 2022

During the first half of 2021, the Kenyan economy recorded an average growth of 5.4 percent, an increase from the 0.2 percent decline recorded in H1’2020.

Growth was mainly driven by the recovery in the transport sector and the accommodation and food sector which grew by 16.9 percent and 9.1 percent, respectively, in Q2’2021, compared to the contraction of 16.8 percent and 56.6 percent, recorded in Q2’2020.

The growth in these sectors followed the easing of COVID-19 travel restrictions and the lift of the dawn to dusk curfew that was put in place since March 2020.

The average GDP growth for 2021 is forecasted to be 5.8 percent, with Cytonn Investments projecting Kenya’s economy to grow by 5.7 percent in 2021.

The growth will be supported by the continued recovery in the accommodation and food sectors, the easing of the COVID-19 restrictions, and the rollout of the vaccine.  However, the key challenge remains the COVID-19 pandemic given the emergence of new variants such as the Omicron variant.

ASSET CLASSES REVIEW

The returns by the various asset classes improved in 2021, with the 364-day, 182-day, and 91-day Government papers recording yields of 9.4 percent, 8.1 percent, and 7.3 percent, respectively, while Real Estate yield and NASI recorded returns of 7.1 percent and 5.5 percent respectively.

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However, the average returns of the top five Money Market Funds recorded a 0.2 percent points decline to 9.5 percent in December 2021, from 9.7 percent recorded in December 2020.

2020 and 2021 Return By Asset Class

Money Market Funds continued to perform better than all the other asset classes in 2021, for the second year in a row, due to their higher returns as compared to the returns offered by the other asset classes.

Money Market Funds offer a good safe haven for investors who wish to switch from a higher-risk portfolio to a low-risk portfolio, especially in times of uncertainty. During the period under review, the Cytonn Money Market Fund (CMMF) had the highest effective annual yield of 10.5 percent compared to an industry average of 8.8 percent.

Notably, the other asset classes recorded improvements from 2020 with NASI being the largest gainer having increased by 14.1 percent points to a return of 5.5 percent, from a decline of 8.6 percent in 2020, as investors sought to profit from the recovery in stock prices from last year’s lows.

Additionally, the gradual economic recovery following the reopening of the economy contributed to the improvement.

FIXED INCOME REVIEW

In 2021, there was relatively low demand for Treasury-bills auctions as the average subscription rate came in at 94.1 percent, down from the 130.9 percent subscription rate recorded in 2020. This was