Weekly Commentary – 22nd January 2021

Foreign Exchange Reserves

The CBK’s usable foreign exchange reserves remained adequate at USD 7,658 million (4.70 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 appreciated against the Dollar and the Euro to trade at Kshs 109.81 and Kshs 133.34 from Kshs 110.10 and Kshs 133.99 respectively. The Shilling depreciated against the Sterling Pound to trade at Kshs 150.64 an increase of 30 basis points. The increase in the dollar is attributable to higher dollar inflows from offshore investors into the local debt market due to the improved investor sentiment for so-called frontier assets.

Liquidity

Money market was relatively liquid supported by government payments which partly offset tax remittances. The inter-bank rate decreased to 4.43% from 4.61% recorded in the previous week. The inter-bank volume decreased to Kshs 8.24 billion from Kshs 13.02 billion. Commercial banks’ excess reserves stood at Kshs 10.70 billion which is a decrease from Kshs 13.00 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 decreased to 84.52% down from 110.13% the preceding week and became under-subscribed. The under-subscription in T-Bills is attributable to slight improvements in the liquidity of the money markets. The 91-day paper was under-subscribed at 53.74% down from 125.37%, the subscription rate for the 182-day and 364-day papers stood at 9.16% and 172.20% from 81.02% and 133.15% respectively. The yields on the 91-day and 364-day papers increased marginally to 6.98% and 8.51% from 6.88% and 8.45% respectively and the 182-day papers decreased marginally to 7.51% from 7.52%.

T-Bonds

The bonds market had a high demand for the month’s bond offers. Bonds turnover decreased with bonds turnover closing in at Kshs 4.74 billion from Kshs 7.33 billion registered in the previous session. The overall subscription rate the bond offered was 250.95%. The opened auction was IFB1/2021/016 with a fixed coupon of 12.3% and an effective tenor of 15.9 years. The government rejected high bids only accepting Kshs 81.1 bn out of the Kshs 125.5 bn worth of bids received, translating to an acceptance rate of 64.6%.

Equities

The Equity Market closed the week with 10.1 million shares traded with equity turnover of Kshs 338 million against Kshs 23.9 million shares traded with equity turnover of Kshs 773 million in the previous week. Market capitalization decreased slightly by 2.12% to Kshs 2.38 billion.

NASI, NSE 20 and NSE 25 decreased by 2.12%, 1.69% and 1.64% respectively. The performance of the NASI was driven by declines recorded by large-cap stocks with the top losses being recorded in BK Group, Safaricom and KCB Group, which declined by 9.8%, 2.7% and 2.4% respectively.

The Banking sector had shares worth Kshs 1.2Bn transacted which accounted for 46.56% of the week’s traded value, Manufacturing & Allied sector represented 6.32% and Safaricom with shares worth Kshs 84.3m transacted, contributed 31.80%.

Top Losers	W-o-W
Eveready	-13.45%
BK Group	-9.76%
Unga	-7.66%
Liberty	-7.25%
Centum	-6.03%

Alternative Investments

The derivatives market over the week recorded 58 contracts having a turnover of Kshs 2.7 million from 41 contracts having a turnover of Kshs 1.9 million in the previous week.

I-REIT market over the week recorded a turnover of Kshs 0.48 million with 42 deals which was an increase from a turnover of Kshs 0.41 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	2.08%
Dow Jones Industrial Average (DJI)	0.77%
FTSE 100 (FTSE)	-0.60%
STOXX Europe 600	0.17%
Shanghai Composite (SSEC)	1.13%
MSCI Emerging Markets Index	1.71%
MSCI World Index	0.65%

Continental Markets	W-o-W
FTSE ASEA Pan African Index	0.42%
JSE All Share	0.75%
NSE All Share (NGSE)	-0.42%
DSEI (Tanzania)	-0.72%
ALSIUG (Uganda)	-1.55%

Global stocks markets gained over the week. The gains in the S&P 500 index occurred as stocks in the Telecoms, Utilities, and Technology sectors gained.

The US stock market closed mixed after hitting new record highs after the swearing-in of the new president. Investors are keenly watching the Covid-19 stimulus package which is expected to be passed during the first week of February. The market was mainly driven by tech giants with Apple, Intel, and Facebook among the top performers.

On the regional front, the FTSE ASEA Pan African Index, representing African stock exchanges gained only marginally as the rand remained vulnerable, after rising significantly in the last few months of 2020 due to high level of government debt, which continues to rise which limits further rand appreciation potential.

On the global commodities markets, Crude Oil WTI declined by 0.53% and the ICE Brent Crude increased by 0.15%. Gold futures prices increased by 1.26% to settle at $1,852.95.

Week’s Highlights

• KRA surpassed its target revenue collections to raise Kshs 166 billion in December 2020 – a 3.5% increase from December 2019. Customs and Border control recorded the highest growth of 40.9% to raise Kshs 60.8 billion. Improved revenue collection is attributed to improved economic conditions since the ease of Covid-19 containment measures as well as the agency’s efforts to increase tax compliance.

• The Treasury has surpassed its domestic borrowing target for the first half of the current financial year from commercial lenders, thus cutting credit to the private sector. The domestic debt for the first half of 2020/2021 increased by 310.94 billion to nearly 3.49 trillion, supported by increased liquidity and low interest on government securities.

• Insurance policy cancellations and withdrawals jumped by nearly a third in six months to June 2020. Policy surrenders also rose by 26% to 5.33 billion from 4.22 billion in the preceding year, as individuals and businesses grappled with revenue losses and salary cuts.

• China has postponed debt repayment for 27 billion whose first installment was due in January 2021. This comes after Paris club suspended loan repayments of about 33 billion between January and June for four years. The suspension will improve liquidity to enable the country honor its other obligations as well as recover from the impacts of the pandemic on the economy.

• Safaricom’s share of combined investor wealth at NSE rose by 84 billion since the year started to 1.45 trillion to account for 60% of the bourse total valuation. This is attributable to the high interest held by investors on tech stocks and expected rebound in revenue growth on the M-Pesa business.

• US shares traded higher as president-elect Joe Biden got sworn in and signed executive orders re-engaging with WHO and rejoining Paris agreement on climate change. There is also optimism that the new administration will boost fiscal spending through the $1.9 trillion stimulus package expected to be passed during the first week of February.