Weekly Commentary – 20th November 2020

Foreign Exchange Reserves

The CBK’s usable foreign exchange reserves remained adequate at USD 7,928 million (4.80 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 depreciated against the US dollar and the Euro to trade at Kshs 109.39 and Kshs 129.45 from Kshs 109.11 and Kshs 128.75 respectively. The Shilling weakened against the Sterling Pound to trade at Kshs 144.85 an increase of 87 basis points. The weakening in the dollar is attributable to heightened dollar demand from importers and low inflows from sectors like tourism.

Liquidity

Money markets remained relatively liquid supported by Treasury’s efforts to raise new debt. The inter-bank rate decreased to 3.01% from 3.06% recorded in the previous week. The inter-bank volume decreased to Kshs 4.80 billion from Kshs 7.87 billion. This was supported by government payments, which partly offset tax receipts. Commercial banks’ excess reserves stood at Kshs 8.20 billion which is a decrease from Kshs 9.80 billion. Remittance inflows increased in relation to the 4.25 percent cash reserves requirement (CRR). Open market operations remained active.

Remittance inflows remained strong in October 2020 increasing by 17.3% to $263.1 million compared to $224.3 million in October 2019. The cumulative inflows in the 12 months to October totaled $3.0 billion compared to $2.8 billion in the same period last year. This has cushioned the shilling against further depreciation.

Fixed Income

T-Bills

The T-Bills subscription rate decreased to 104.24% down from 126.55% the preceding week and remained over-subscribed. The decrease in T-Bill subscription is attributable to the concurrent primary bond auction. The 91-day paper was oversubscribed at 139.55% down from 220.30%, the subscription rate for the 182-day and 364-day papers stood at 65.03% and 129.32% from 80.26% and 135.35% respectively. The yields on the 91-day, 182-day and 364-day papers papers increased marginally to 6.71%, 7.15% and 8.09% from 6.67%, 7.11% and 8.04% respectively.

T-Bonds

The bonds market had high demand for the months bond offers. Bonds turnover decreased with bonds turnover closing in at Kshs 2.44 billion from Kshs 2.61 billion registered in the previous session. Overall subscription rate for all two bonds offered was 139.95%. The two re-opened auctions were, FXD2/2013/15 and FXD1/2018/20 with fixed coupons of 11.5% & 13.3% and effective tenors of 7.50 years and 17.42 years, respectively. The government rejected high bids only accepting Kshs 53.7 billion out of the Kshs 56.0 billion worth of bids received, translating to an acceptance rate of 96.0%.

Equities

The Equity Market closed the week with 29.3 million shares traded with equity turnover of Kshs 909 million against Kshs 16.4 million shares traded with equity turnover of Kshs 372 million in the previous week. Market capitalization decreased slightly by 0.15% to Kshs 2.21 billion.

NASI, NSE 20 and NSE 25 decreased by 0.15%, 0.20% and 0.76% respectively. The performance of the NASI was driven by losses recorded by large-cap stocks with the top losses being recorded in Standard Chartered Bank, Equity Group, KCB Group and ABSA Bank, which decreased by 4.5%, 3.9%, 3.5% and 3.2% respectively.

The Banking sector had shares worth Kshs 804m transacted which accounted for 36.78% of the week’s traded value, Manufacturing & Allied sector represented 12.38% and Safaricom with shares worth Kshs 992m transacted, contributed 45.40%.

Alternative Investments

The derivatives market registered no activity.

I-REIT market over the week recorded a turnover of Kshs 0.48 million with 37 deals which was a decrease from Kshs 0.20 million recorded over the close of last week.

The ETF market over the week recorded a turnover of 2.96 million with 2 deals from no activity in the previous week.

Global and Regional Markets

Global stocks markets gained over the week. The gains in the FTSE 100 & MSCI World Index occurred as Moderna announced that its Covid-19 vaccine is 94.5% effective treatment of Covid-19 with few adverse side effects. The breakthrough comes barely a week after Pfizer Inc. and BioNTech SE announced that their Covid-19 vaccine was 90 percent effective treatment of Covid-19.

Yields on Kenya’s Eurobonds declined by 5.0 basis points. The yields on 10-year Eurobonds for Ghana and Angola also declined marginally.

On the global commodities markets, Crude Oil WTI closed the week high with 5.01% and the ICE Brent Crude increased by 4.42%. Gold futures prices decreased by 0.79% to settle at $1,871.25.

On the regional front, Zambia’s $3 billion Eurobond holders have rejected a request from the government to defer interest payments. Nigeria’s inflation rate in October rose as a result of increased food prices occasioned by border closures, dollar restrictions, and banditry attacks that are preventing farmers from producing food.

Week’s Highlights

• The International Monetary Fund (IMF) and the World Bank have forced Kenya to take a Sh75 billion Covid-19 debt relief as a precondition for accessing cheap loans. Eurobond terms indicate that non-payment of Kenya’s external debt, including seeking moratoriums, would be considered as defaulting, which could trigger a demand for the country to pay the entire debt. The government is in talks with the IMF on a new lending facility, as Kenya faces huge budget deficits worsened by the Covid-19 crisis.

• The Kenya shilling hit a new historic low at the start of the week against the US dollar, signaling rising costs of imports of raw and finished goods. The Shilling has come under pressure as demand for dollars surged in a period that has seen supply of dollars decrease due to lack of tourists and a reduction in exports of other commodities. Analysts are attributing the latest fall on heightened demand for the foreign currency as importers raise stock levels.

• Tanzania edged out the US as Kenya’s leading tourism top source market in September buoyed by its lesser Covid-19 lock-down measures. Rising virus cases have hampered arrivals from the world’s biggest economy after many countries, including Kenya, categorized US travelers as Covid-19 high-risk. This has forced many of them to either cancel or postpone their trips indefinitely.

• Centum Real Estate has floated Sh4 billion housing bond to finance projects that would deliver more than 1,400 units to the market. The three-year zero coupon bond will be issued at a discount rate on the three-year Treasury bond, plus a market-determined margin. The managing director said the firm will be open to taking up to Sh6 billion if the bond is oversubscribed, supported by strong a balance sheet that currently stands at Sh35 billion.

• Safaricom will borrow billions of shillings to fund its expansion into Ethiopia. Safaricom, will own a majority stake of 51% in the consortium of firms seeking a Telecommunication license in Ethiopia. This means that it will shoulder most of the $1 billion investment. Safaricom will, however, take longer-term debt to fund the Ethiopia venture in a departure from its current practice of taking short-term bank loans, which it pays within one year.

• Bitcoin hit a three year high with cryptocurrencies gaining in popularity among investors. This was driven by news that Global Central banks were paying more attention to digital currencies. Coindesk, the Citi analyst noted the similarity between the current market conditions and the 1970 gold market where market uncertainty resulted in investors rallying to gold as a tangible store of wealth.

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