Investors experience some good luck based on the depreciation of Kenya’s currency
The depreciation of the Kenyan shilling increases the value of returns on foreign currency assets, protecting diversified investors from fluctuations in the local economy.
In the last two years, the local currency has depreciated dramatically, while equities and fixed-income investments linked to the US dollar and regional currencies have seen relatively higher results.
Most companies traded on the Nairobi Securities Exchange (NSE) have seen price decreases, and until recently, local bond interest rates provided no defense against inflation.
In the meantime, investors with more diverse portfolios are realizing significant returns on the portions of their holdings that are not denominated in local currency.
For example, the interest rate on dollar money market funds from companies like Sanlam and CIC Asset Management has risen from the beginning of the year to highs of six percent from lows of 3.5 percent.
The dollar’s rise versus the local currency has benefited holders of fixed-income investments even more. In only the last 12 months, the dollar has increased in value by 24.9 percent vs the shilling, buying 152 units of local money.
The impact of the relative weakness of the shilling has also increased dividend profits for investors in international stock markets. They comprise stockholders of cross-listed firms on the NSE and companies from the regional market. They are Umeme Limited, Bank of Kigali, and MTN Uganda.
The value of the dividends given by their firms to investors in Kenya has increased due to the neighboring countries’ currencies appreciating versus the shilling. In comparison to the Kenyan shilling over the last 12 months, the Ugandan shilling has increased by 24.9 percent, the Tanzanian shilling by 16.1 percent, and the Rwandan franc by 6%.
In addition to portfolio investors, the inflated profits and assets in their overseas subsidiaries are benefiting Kenyan multinational corporations with varied activities throughout the area. Among them are financial institutions like DTB Group, I&M Holdings, NCBA Group, and Equity Group.
