Diversifying Your Investment Portfolio As The Economy Bounces Back

The state of Kenya’s economy is set to improve in the next 1-2 years on the backdrop of a falling inflation rate, projected favorable weather conditions, and reduced prices of food and fuel, Old Mutual Investment Group (OMIG) Q1 2023 Outlook shows.

The outlook is a quarterly OMIG Investments discussion forum on the prevailing macroeconomic environment and its influence on available investment options for both retail and institutional investors.

Speaking during the inaugural OMIG Q1 2023 investment discussion, OMIG Kenya Chief Investment Officer Eric Karimi said, “Despite inflation appearing to stabilize at 9%, it may remain elevated in the near term because oil prices are still high, and weather conditions remain unfavorable hence affecting food prices. However, from a policy perspective, a lot is happening to support farmers, and this may yield fruit, therefore the economy will bounce back not in the immediate term but gradually over the next 12 – 18 months.”

Irrespective of the challenging economic environment, findings from the outlook show that spreading one’s risk by investing in a well-diversified investment portfolio made up of both growth and income assets or securities, is key for better and stable returns.

In his remarks, Kevin Nyaga, Head of Alternative Investments at OMIG Kenya said, “The current state of the financial markets has revealed a need to diversify one’s investment portfolio of traditional asset classes such as cash and near cash, stocks, and bonds to include other alternative assets or securities whose returns, and performance have a lower correlation with traditional investment markets. Against this backdrop, investors are encouraged to look closer for opportunities in the Alternative Investments space. To date, we are seeing more demand in alternative investments like infrastructural-themed private equity, venture capital, and property sub-sectors such as affordable housing targeting low to mid-income earners, and specialized housing such as college student accommodation, among others. Since the peak of Covid in 2020, we have witnessed that Alternative Investments have, and continue to provide some level of diversification in a volatile macro-economic environment”.

These opportunities can be accessed through a fund structure which is usually advantageous due to it being professionally managed and diversified, offering economies of scale and improving liquidity for investors.

Moreover, “Offshore Investments which are diverse in nature and cut across different geographies, strategies, and asset classes such as equities, interest bearing securities, indices, commodities, etc, also go a long way in providing a currency hedge and extra diversification for investors,” said John Kihara, OMIG’s Senior Portfolio Manager and Head of Offshore Investments. “In essence, maintaining an appropriate level of exposure in the offshore asset class provides diversification benefits and higher-risk adjusted returns in the medium to long-term considering a weakening Kenya shilling and limited local investment opportunities. The key markets likely to outperform over this period are the developed markets such as the US and key Emerging Markets such as China & India.

The Old Mutual Group seeks to drive innovation in financial service solutions, which will enable African households to achieve financial stability and remain cautioned amidst challenging economic times.