Weekly Commentary – 16th October 2020

Foreign Exchange Reserves

The CBK’s usable foreign exchange reserves remained adequate at USD 8,311 million (5.04 months of import cover). This meets CBK’s statutory requirement to endeavor to maintain at least 4.0-months of import cover, and the EAC region’s convergence criteria of 4.5-months of import cover.

Currency

The Kenyan Shilling weakened against the Dollar but strengthened against the Euro to trade at Kshs 108.62 and Kshs 127.25 from Kshs 108.52 and Kshs 127.56 respectively. The Shilling weakened against the Sterling Pound to trade at Kshs 140.62 an increase of 38 basis points. The increase in the dollar is attributable to subdued dollar demand from importers.

Liquidity

Money markets remained relatively liquid supported by government payments which offset tax receipts. The inter-bank rate increased to 2.36% from 2.35% recorded in the previous week. The inter-bank volume increased to Kshs 9.59 billion from Kshs 7.97 billion. Commercial banks’ excess reserves stood at Kshs 18.30 billion which is an increase from Kshs 14.80 billion.

Fixed Income

T-Bills

The T-Bills subscription rate increased to 131.63% up from 110.00% the preceding week and remained over-subscribed. The over-subscription in T-Bills is attributable to the favorable liquidity conditions in the money markets. The 91-day paper was oversubscribed at 215.17% up from 186.47%, the subscription rate for the 182-day and 364-day papers stood at 70.97% and 158.88% respectively. The yields on the 91-day, 182-day and 364-day papers increased marginally to 6.52%, 6.91% and 7.80% from 6.47%, 6.85% and 7.76% respectively.

T-Bonds

Bonds turnover during the week decreased to close at Kshs 2.31 billion from Kshs 2.96 billion registered in the previous session. However, the bonds market had high demand for the month’s bond offers. Overall subscription rate for all three bonds offered was 188.72%. The two re-opened auctions were, FXD1/2011/20 and FXD1/2018/25 with fixed coupons of 12.0% & 13.5% and effective tenors of 10.6 years and 22.7 years, respectively. The government rejected high bids only accepting Kshs 60.0 bn out of the Kshs 69.1 bn worth of bids received, translating to an acceptance rate of 86.8%.

Equities

The Equity Market closed the week with 4.4 million shares traded with equity turnover of Kshs 121 million against Kshs 13.7 million shares traded with equity turnover of Kshs 325 million in the previous week. Market capitalization decreased slightly by 0.30% to Kshs 2.14 billion.

NASI, NSE 20 and NSE 25 decreased by 0.30%, 1.38% and 0.40% respectively. NASI index declined due to a downswing in large-cap stocks. Top losses were recorded by HF Group, KCB Group, and Centum, which declined by 9.3%, 2.4% and 2.1% respectively.

The Banking sector had shares worth Kshs 423M transacted which accounted for 32.24% of the week’s traded value. Safaricom had shares worth Kshs 658M transacted, contributed 50.11%.

Alternative Investments

The derivatives market over the week recorded 11 contracts having a turnover of Kshs 0.3 million.

I-REIT market over the week recorded a turnover of Kshs 1.07 million with 38 deals which was a decrease from Kshs 1.82 million recorded over the close of last week.

The ETF market recorded a turnover of Kshs 0.20 million with 1 deal which was a decrease from Kshs 0.59 million and 2 deals.

Global and Regional Markets

Global stock markets had a mixed performance. The decline in the FTSE 100 & MSCI World Index occurred as European countries like France and Germany enforced new restrictions in an effort to slow the second wave of Covid-19 infections.

US stocks gained as the American retail spending growth exceeded estimates that had been previously made by investors. This offset the gloomy updates on stimulus negotiations and positively impacted the DJI and S&P 500 indices. China’s stocks rose as investors incorporate some risk-hedging strategies in the lead-up to the U.S. presidential election.

The global commodities markets, Crude Oil WTI closed the week high by 0.69% at USD 40.88 and the ICE Brent Crude increased by 0.19% to USD 42.93. Gold futures prices decreased by 1.03% to settle at $1,906.40.

Week’s Highlights

• Kenya’s economy contracted by 5.7% in the second quarter of this year, the deepest in nearly two decades, hit by the economic fallout from the Covid-19 pandemic. Economic activity was hurt by lock-down measures imposed to curb the spread of Covid-19 including a country-wide dusk-to-dawn curfew, restrictions on travel in and out of the capital Nairobi and closure of learning institutions, hotels and restaurants.

• Kenya dropped to 7th position in investment attraction ranking in Africa by the Absa Africa Financial Markets Index 2020. The country has failed to make significant gains in the legality and enforceability of standard financial markets master agreements. The COVID-19 pandemic also triggered foreign investor sell-offs through the second quarter.

• Chinese stock market passed the $10 trillion valuation mark for the first time, thanks to the strength of its tech companies, size of domestic market and country’s relative success in fighting Covid-19. This is the only country set to avoid contraction this year.

• Kenyan exports in the first eight months of 2020 jumped to KSh 423.3 billion, a KSh 20 billion increase from the same period in 2019 according to data from the Kenya National Bureau of Statistics. Food and beverage such as tea, coffee, fruits and vegetables accounted for the largest share of exports while non-food industrial exports accounted for a small part of the total exports.

• The lack of Covid-19 stimulus continued this week due to failed negotiations by the house and senate in the USA. Agreement over a successive installment to the Coronavirus Aid, Relief and Economic Security (CARES) Act failed causing another tumult in the gold and stock markets.

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