Weekly Commentary – 08th January 2021

Foreign Exchange Reserves

The CBK’s usable foreign exchange reserves remained adequate at USD 7,722 million (4.74 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 Dollar and the Euro to trade at Kshs 109.55 and Kshs 134.52 from Kshs 109.17 and Kshs 133.90 respectively. The Shilling depreciated against the Sterling Pound to trade at Kshs 148.89 an increase of 36 basis points. This is attributable to subdued dollar demand from importers.

Liquidity

Money markets liquidity tightened attributable to government payments. The inter-bank rate increased to 6.18% from 6.08% recorded in the previous week. The inter-bank volume decreased to Kshs 5.18 billion from Kshs 16.39 billion. Commercial banks’ excess reserves stood at Kshs 15.70 billion which is a decrease from Kshs 16.80 billion. Remittance inflows increased in relation to the 4.25 percent cash reserves requirement (CRR). Open market operations remained active.

Fixed Income

T-Bills

The T-Bills subscription rate increased to 65.70% up from 21.62% the preceding week and remained under-subscribed. The under-subscription in T-Bills is attributable to the concurrent primary bond issue. The 91-day paper was under-subscribed at 18.70% up from 16.72%, the subscription rate for the 182-day and 364-day papers stood at 50.00% and 100.21% from 5.65% and 39.54% respectively. The yields on the 91-day paper decreased to 6.90% from 6.91% and yields on the 182-day and 364-day papers increased to 7.48% and 8.36% from 7.40% and 8.35% respectively.

T-Bonds

The bonds market had high demand for the month’s bond offer. Bonds turnover increased with bonds turnover closing in at Kshs 6.43 billion from Kshs 6.04 billion registered in the previous session. The overall subscription rate for the bond offered was 244.60%. The bond issued at auction is FXD1/2021/02 with a fixed coupon of 9.5% and an effective tenor of 2.0 years. The government rejected high bids only accepting Kshs 55.9 bn out of the Kshs 61.2 bn worth of bids received, translating to an acceptance rate of 91.4%.

In the international market, yields on Kenya’s Eurobonds remained stable, rising marginally by an average of 0.96 basis points. The yields on the 10-year Eurobonds for Ghana and Angola also remained relatively stable.

Equities

The Equity Market closed the week with 9 million shares traded with equity turnover of Kshs 238 million against Kshs 4 million shares traded with equity turnover of Kshs 86 million in the previous week. Market capitalization increased slightly by 1.37% to Kshs 2.37 billion.

NASI, NSE 20 and NSE 25 increased by 1.36%, 1.50% and 0.84% respectively. The performance of the NASI was driven by gains recorded by large-cap stocks with the top gains being recorded in Cooperative Bank, Diamond Trust Bank (DTB-K), and Safaricom, which increased by 4.0%, 3.3% and 2.2% respectively.

The Banking sector had shares worth Kshs 507m transacted which accounted for 31.85% of the week’s traded value, Manufacturing & Allied sectors represented 5.95% and Safaricom with shares worth Kshs 909m transacted, contributed 57.11%.

Top Losers	W-o-W
Sanlam	-7.34%
EA Portland	-6.82%
BK Group	-6.10%
Olympia	-5.91%
Stanbic	-5.59%

Alternative Investments

The derivatives market over the week recorded 32 contracts having a turnover of Kshs 0.7 million from 10 contracts with a turnover of Kshs 0.2 million from the previous week.

I-REIT market over the week recorded a turnover of Kshs 0.63 million with 62 deals which was an increase from Kshs 0.38 million recorded over the close of last week.

The ETF market registered no activity.

Global and Regional Markets

Global Markets	W-o-W
S&P 500	1.83%
Dow Jones Industrial Average (DJI)	1.61%
FTSE 100 (FTSE)	6.39%
STOXX Europe 600	3.04%
Shanghai Composite (SSEC)	2.79%
MSCI Emerging Markets Index	4.82%
MSCI World Index	2.35%

Continental Markets	W-o-W
FTSE ASEA Pan African Index	0.03%
JSE All Share	7.44%
NSE All Share (NGSE)	-0.37%
DSEI (Tanzania)	0.03%
ALSIUG (Uganda)	1.53%

Global stocks markets had gained over the week. The gains in the FTSE 100 & MSCI World Index occurred driven by hopes that a bumper U.S. stimulus package and large-scale Covid-19 vaccine roll-outs across the continent will spur a strong economic recovery.

U.S. stocks are at record highs, boosted largely by optimism that the roll-out of vaccines to fight the Covid-19 virus will allow for that recovery, while hopes of more fiscal stimulus under the new U.S. President-elect have also underpinned the market. Asia Pacific stocks gained over rising hopes for more U.S. stimulus measures and a peaceful transfer of power in the U.S. on Jan. 20.

On the regional front, the JSE All Share Index gained benefiting from positive sentiment toward riskier assets as investors mulled speculation Washington lawmakers are edging closer to a U.S. stimulus deal.

On the global commodities markets, Crude Oil WTI closed the week high with 7.67% and the ICE Brent Crude increased by 8.09%. Gold futures prices decreased by 3.15% to settle at $1,835.40.

Week’s Highlights

• The level of foreign exchange reserves held by the Central Bank of Kenya fell by $1 billion to $7.75 billion on 31st December 2020 compared to $8.758 billion held on 3rd January 2020 according to data from the central bank. Kenya received a boost to its foreign currency reserves in May when the IMF disbursed a $739 million loan to help the economy cope with the negative effects of Covid-19.

• Nairobi Securities Exchange (NSE) recorded an 81% increase in Equity Turnover to KSh 237.8 Million from 804 deals that saw the volume of shares increase by 60%. This is compared to an NSE’s total market turnover of KSh 130.97 recorded Thursday. This somewhat sluggish performance at the bourse happens as the first trading week of 2021 comes to an end with investors trooping back after Christmas and New Year holidays.

• The International Finance Corporation (IFC) says it will make a $10 million (KSh1.096 Billion) equity investment in East African based Private Equity fund Ascent Rift Valley Fund II. Ascent Rift Valley Fund II is seeking to raise $120 million, total committed capital. In December, the private equity firm secured a $10 million investment from the Dutch entrepreneurial development bank FMO.

• South Africa’s Rand has weakened for five straight days — the longest streak in five months — as the country contends with a more infectious strain of the virus, surging infections, and difficulties in procuring vaccines.

• Kenya is yet to start repayments of 162 billion loan from China’s Exim Bank used in the construction of the Standard Gauge Railway. Loan repayments to China will now jump from 31 billion in the previous fiscal year to 71.4 billion in the current year, and a further 111.47 in the subsequent year. Taxpayers will shoulder the foreign-debts-burden which currently stands at 7 trillion.

• Safaricom share prices rose to a record high of 35, pushing its market capitalization to 1.4 trillion. This is the highest market capitalization, accounting for 61% at NSE.

• Gold finished the first week of the new year with its biggest decline since November. This was due to a record of 2,667 Americans dying a day on the average from Covid-19 since the start of 2021, and the U.S. posting its worst jobs report in eight months.