Weekly Commentary – 11th December 2020

Foreign Exchange Reserves

The CBK’s usable foreign exchange reserves remained adequate at USD 7,849 million (4.82 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 111.48 and Kshs 134.92 from Kshs 111.06 and Kshs 134.44 respectively. The Shilling gained against the Sterling Pound to trade at Kshs 148.24 a decrease of 34 basis points. The increase in the dollar is attributable to persistent dollar demand from importers as well as low inflows from sectors like horticulture and tourism.

Liquidity

Money markets remained relatively liquid supported by government payments which offset tax receipts. The inter-bank rate increased to 4.16% from 3.91% recorded in the previous week. The inter-bank volume increased to Kshs 11.82 billion from Kshs 5.46 billion. Commercial banks’ excess reserves stood at Kshs 24.60 billion in relation to the 4.25% cash reserves requirement (CRR) which is an increase from Kshs 8.50 billion in the previous week. Open market operations remained active.

Remittance inflows increased to USD 263 million in October 2020 from USD 224 million over the same period in 2019, a 17.3% increase.

Fixed Income

T-Bills

The T-Bills subscription rate decreased to 41.05% down from 45.49% the preceding week and remained under-subscribed. The 91-day, 182-day and 364-day papers were under-subscribed at 38.77% down from 74.28%, 30.20% up from 26.87% and 52.81% up from 52.59% respectively in the previous week. The under-subscription in T-Bills is attributable to lower liquidity in the market as well as the concurrent bonds issued during the week. The yields on the 91-day, 182-day and 364-day papers increased marginally to 6.90%, 7.36% and 8.25% from 6.86%, 7.33% and 8.20% respectively.

T-Bonds

Bonds turnover during the week increased to close at Kshs 2.67 billion from Kshs 0.78 billion registered in the previous week. However, the bonds market had high demand for the month’s bond offers. The overall subscription rate for all two bonds offered was 60.85% from 139.95% in the month of November. The two re-opened auctions were, FXD1/2012/15 and FXD2/2019/15 with fixed coupons of 11.0% & 12.7% and effective tenors of 6.8 years and 13.4 years, respectively. The government rejected high bids only accepting Kshs 18.3 bn out of the Kshs 24.3 bn worth of bids received, translating to an acceptance rate of 75.0%.

In the international market, yields on Kenya’s Eurobonds declined by an average of 10.8 basis points. The yields on the 10-year Eurobonds for Ghana and Angola also declined.

Equities

The Equity Market closed the week with 23.2 million shares traded with equity turnover of Kshs 0.42 billion against Kshs 34.3 million shares traded with equity turnover of Kshs 1.09 billion in the previous week. Market capitalization increased slightly by 0.25% to Kshs 2.26 billion.

NSE 20 gained 0.43% while NASI and NSE 25 declined by 0.68% and 0.49% respectively. NASI index declined due to a downswing in large-cap stocks. Top losses were recorded by BAT, ABSA Bank Plc and Safaricom, which declined by 2.5%, 2.0% and 1.6% respectively.

The Banking sector had shares worth Kshs 943M transacted which accounted for 35.19% of the week’s traded value. Safaricom had shares worth Kshs 1.3 billion transacted, contributed 51.66%.

Alternative Investments

The derivatives market over the week recorded 117 contracts having a turnover of Kshs 3.26 million from 6 contracts having a turnover of Kshs 0.19 million in the previous week.

I-REIT market over the week recorded a turnover of Kshs 0.42 million with 39 deals which was an increase from Kshs 0.33 million recorded over the close of last week.

The ETF market recorded a turnover of Kshs 0.38 million with 1 deal which was a decrease from Kshs 4.30 million and 4 deals.

Global and Regional Markets

The S&P 500 Index declined 0.96% over the week supported by politicians signaling an increased likelihood of a disruptive break between the U.K. and the European Union in Brexit talks. Futures tied to the S&P 500 fell 0.7%. The Dow Jones Industrial Average declined 0.57% due to futures tied to the benchmark declining by 0.6%.

The STOXX Europe 600 Index declined 0.99% as U.K. Prime Minister Boris Johnson said there was a strong possibility that efforts to reach a last-minute deal on trade with the EU would fail.

On the regional front, the JSE All Shares Index marginally declined by 0.08% as Vodacom Group Ltd., South Africa’s largest mobile operator announced it is buying a $2.59 billion stake in Kenya’s Safaricom Ltd.

The global commodities markets, Crude Oil WTI closed the week high by 0.67% at USD 46.57 and the ICE Brent Crude increased by 1.46% to USD 49.97. Gold futures prices gained by 0.20% to settle at $1,843.60.

Week’s Highlights

• The Central Bank of Kenya, (CBK), recently released the Financial Stability Report, October 2020, highlighting that the banking sector was resilient in 2019 despite the interest rate controls and the subdued economic environment seen during the period.

• Fitch Ratings noted that Kenya will find it challenging to stabilize its current debt levels. The Agency said with the 2022 general elections looming on the horizon, Kenya will experience political difficulties associated with reining in the deficit. Kenya has already sought credit from the IMF to shield the economy from the effects of the Covid-19 pandemic, provide it with forex, and assist in debt sustainability.

• Kenya’s private sector activity recorded a sharp decline in November after a steady rise in the six months prior, as businesses reported weak growth in sales and productivity. The slowdown is largely attributed to the resurgence of Covid-19 cases. The Stanbic Bank Kenya Purchasing Managers Index (PMI) fell steeply to 51.3 in November from a peak of 59.1 in October. The reintroduction of some covid19 restrictions in Kenya and fresh lock-down measures across Europe hampered growth efforts for some businesses in Kenya.

• Kenyan fresh produce will enjoy duty-free export to the UK post-Brexit and secure the Sh220 billion trade with the European nation following a new deal signed on Tuesday.

• The Capital Markets Authority has given approval to Acorn to issue Student Accommodation Development Real Estate Investment Trusts and Income Real Estate Investment Trusts. The investment instruments will be offered through a restricted public offer and will only be available to institutional and sophisticated investors.

• Kenya’s pharmaceutical company MYDAWA has partnered with the British biopharmaceutical company AstraZeneca, one of the companies leading in the development of the covid19 vaccine. The partnership aims to increase access to quality and affordable medical products in Kenya.

• Crude oil prices edged higher again after a setback on Tuesday, when American Petroleum Institute data showed another surprising rise in U.S. crude inventories, by over 1 million barrels. A decline of over 1.5 million barrels had been expected, and the numbers were taken as fresh evidence of slowing demand due to ever-tightening public health measures restricting business and social life due to the pandemic. The U.S. Energy Information Administration releases its inventory numbers at 10:30 AM ET, as usual.

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