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Investment vehicles abroad offer Kenyans various options to diversify their wealth creation portfolios – Business Daily

The offshore investments continue to record an upward trend, partly attributed to the depreciation of the Kenya shilling against the dollar. FILE PHOTO | NMG
Investors looking for opportunities in foreign countries is an industry-wide phenomenon.
For a long time, investors have had it rough deciding options to consider in ensuring the security of their assets, even as they plan to capitalise on advantages offered in other countries.
Investing is a way of increasing wealth, However, there is no guarantee that investors will make a profit or even recoup their investment.
For this reason, some financial institutions are working with international brokers to give Kenyans access to global markets.
The offshore investments continue to record an upward trend, partly attributed to the depreciation of the Kenya shilling against the dollar and the fact that schemes are pursuing diversification due to the stock market volatility.
Sean Gichuru, an investment adviser, says one of the key drivers pushing investors offshore is that developed countries have superior capital markets with a variety of investment vehicles that investors can use to hedge and diversify their portfolios, including derivatives, commodities and Exchange Traded Funds (ETFs).
This access to a multitude of asset classes, he says, allows the investors to shield themselves against overexposure to a single economy or currency.
Moreover, the Nairobi Securities Exchange (NSE) has 64 listed companies for investors to choose from compared to the New York Stock Exchange (NYSE) and the Nasdaq with 6,000 combined listings.
As a result, the volume of stocks traded is higher offshore, which means there is more liquidity, reducing the latency between buying and selling as there is always someone on the other end of a trade.
Developed economies can be more attractive to sophisticated investors due to their economic and political stability, which also attracts investors.
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Other factors that are considered are the growth rate of business and jobs, the skill level of the workforce education, and infrastructure.
“Offshore investments bring global diversity to investment portfolios. The concentration of wealth in any geographic area can have negative consequences in the event of unforeseen events. Furthermore, a knowledge of offshore opportunities whether equity, debt, real estate, commodities, or other more exotic assets permits investors to participate in wealth creation outside local markets,” says Mr Gichuru.
Kenya is currently classified as a frontier market and risks being downgraded to a standalone market, the lowest classification characterised by a hostile investment climate and policies that make accessibility of the market impossible.
Morgan Stanley Capital International, the American global, finance, research, and investment advisory firm in its latest annual review of the global investment market indicated that deteriorating macroeconomic conditions and unfavourable investment policies by the Kenyan government have rendered the country an unattractive destination for foreign investments.
The offshore investment universe has opportunities in international stock markets such as the NYSE and Nasdaq, the London Stock Exchange, ETFs, index funds, derivatives, commodities, US treasury bills and bonds, due to their wide access to a multitude of asset classes.
However, investing is not without risk. Wherever there is potential for monetary gain, there will always be inherent risk factors associated with it.
Mr Gichuru says: “Our strategy has been to make recommendations based on our client’s risk appetite, ensuring that our investment decisions are aligned with their goals.”
“With regard to risk mitigation, we diversify offshore portfolios to reduce overexposure in any one sector. Additionally, we often advise that indexes such as the Standard and Poor’s 500 (S&P 500) or the Dow Jones Industrial Average (DJIA 30) are a great way to hedge against concentration risk, this is because they aggregate the largest companies into a basket that can be invested into and are used as benchmarks to determine the state of the overall economy. Historically, there has been no better-performing asset class because equities often provide the greatest returns,” he adds.
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Given the many fraudulent claims associated with this sector, any person interested in offshore investment is advised to seek a legal way of investment by engaging a reputable expert preferably licensed by Capital Markets Authority (CMA).
“A good way to avoid being a victim of fraud when entering into the offshore investment space is to make it a point to deal with regulated entities in recognised jurisdictions. A little research will often reveal who the relevant regulator is in a particular jurisdiction and they will often be the gateway to information on which the reputable and regulated players in a particular area starting your search for an investment partner there will significantly reduce the risk of dealing with fraudulent and unethical entities,” says Kingori Gathinji, head Investments, Stanbic Bank Kenya.
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Joseph Muongi

Financial.co.ke was founded by Mr. Joseph Muongi Kamau. He holds a Master of Science in Finance, Bachelors of Science in Actuarial Science and a Certificate of proficiencty in insurance. He's also the lead financial consultant.