Weekly Commentary – 23rd October 2020

Foreign Exchange Reserves

The CBK’s usable foreign exchange reserves remained adequate at USD 8,223 million (4.99 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 and the Euro to trade at Kshs 108.77 and Kshs 128.56 from Kshs 108.62 and Kshs 127.25 respectively. The Shilling weakened against the Sterling Pound to trade at Kshs 142.30 an increase of 119 basis points. The increase in the dollar is attributable to dollar demand from the energy sector.

Liquidity

Money markets remained relatively liquid supported by government payments which offset tax receipts. The inter-bank rate increased to 2.62% from 2.36% recorded in the previous week. The inter-bank volume increased to Kshs 17.05 billion from Kshs 9.59 billion. Commercial banks’ excess reserves stood at Kshs 18.50 billion which is an increase from Kshs 18.30 billion.

Fixed Income

T-Bills

The T-Bills subscription rate decreased to 81.35% down from 131.63% the preceding week and became under-subscribed. The 91-day paper was oversubscribed at 103.06% down from 215.17%, the subscription rate for the 182-day and 364-day papers stood at 72.28% and 81.74% respectively. The yields on the 91-day, 182-day and 364-day papers papers increased marginally to 6.59%, 6.97% and 7.84% from 6.52%, 6.91% and 7.80% respectively.

T-Bonds

Bonds turnover during the week increased to close at Kshs 3.04 billion from Kshs 2.31 billion registered in the previous session. Overall subscription rate for all the bonds offered was 139.66%. The two re-opened auctions were, FXD1/2011/20 and FXD1/2018/25 with fixed coupons of 12.0% & 13.5%.

Equities

The Equity Market closed the week with 17.3 million shares traded with equity turnover of Kshs 610 million against Kshs 4.4 million shares traded with equity turnover of Kshs 121 million in the previous week. Market capitalization increased slightly by 1.12% to Kshs 2.17 billion.

NASI and NSE 25 increased by 1.12% and 0.12% respectively while NSE 20 recorded a loss of 0.65%. NASI index increased due to an upswing in large-cap stocks. Top losses were recorded by EABL, Co-operative Bank, and Standard Chartered Bank, which increased by 3.7%, 3.4% and 3.2% respectively.

The Banking sector had shares worth Kshs 405M transacted which accounted for 30.68% of the week’s traded value. Safaricom had shares worth Kshs 722M transacted, contributed 54.69%.

Alternative Investments

The derivatives market over the week recorded 8 contracts having a turnover of Kshs 0.28 million.

I-REIT market over the week recorded a turnover of Kshs 0.74 million with 50 deals which was a decrease from Kshs 1.07 million recorded over the close of last week.

The ETF had no activity over the week.

Global and Regional Markets

Global stock markets declined over the week. The decline in the FTSE 100 & MSCI World Index occurred as Moody’s cut UK’s debt rating after Britain failed to reach a comprehensive post-Brexit trade deal with the European Union by the deadline it set itself. US stocks declined as Alphabet Inc.’s Google was charged with antitrust violations. This was due to exclusionary practices utilized to maintain its monopoly power and that have harmed competition.

China reported a GDP growth of 4.9% in the months of July to September compared to a similar period last year. China’s recovery has been driven by a rebound in consumer spending as more people come out of their homes to spend money in the physical shops.

The global commodities markets, Crude Oil WTI closed the week low by 2.52% at USD 39.85 and the ICE Brent Crude decreased by 2.70% to USD 41.77. Gold futures prices decreased by 0.06% to settle at $1,905.20.

Week’s Highlights

• The Central Bank of Kenya (CBK) has entered into discussions with other global Central Banks on the possibilities of entering the digital currency space. CBK is keenly watching the niche that cryptocurrencies are trying to play in. The CBK governor noted that in spite of the competition, cash will still be around for a long time. The trend is towards a less-cash economy and not a cashless economy.

• Zambia may enter debt default unless it pays an overdue $1 billion on the 2024 Eurobond. They missed a $42.5 million payment that was due last week in spite of the debt service suspension initiative (DSSI) window facilitated by the G20. However, Eurobond creditors were worried that should they provide the debt relief, Zambia would pay other debt services rather than towards COVID19 related expenditures.

• The African Development Fund (ADF) Board of Directors will disburse a loan of KSh 5.5 Billion ($50.7 Million) to Tanzania, to assist the state in responding to the coronavirus pandemic. Tanzania is keen to support its economy by shielding businesses and households from the adverse effects of COVID-19 pandemic.

• Alphabet Inc.’s Google was charged with antitrust violations. This was due to exclusionary practices utilized to maintain its monopoly power and that have harmed competition.

• Visa, has taken a stake in leading UK payments issuer processor, Global Processing Services (GPS). The deal gives Visa a minority stake in GPS although the financial terms remain undisclosed and no shareholders exited. The new funding will see GPS invest in building teams in the Asia Pacific and the Middle East and North Africa regions.

• Officials from the G20 creditor countries announced plans to extend the debt repayment suspension for the world’s poorest countries. The suspension of repayments has been extended for another six months from the end of 2020, with ongoing talks for an option to extend it further if necessary.

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