Weekly Commentary – 12th February 2021

Foreign Exchange Reserves

The CBK’s usable foreign exchange reserves remained adequate at USD 7,638 million (4.60 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 to trade at Kshs 109.44 from Kshs 109.82. It however depreciated against the Sterling Pound and the Euro to trade at Kshs 151.44 and Kshs 132.79 from 149.74 and Kshs 131.69 respectively. The strengthening of the Kenyan shilling is attributable to reduced demand from the energy sector and improving inflows from exports and remittances.

Liquidity

Money markets remained relatively liquid supported by government payments which partly offset tax remittances. The inter-bank rate decreased to 4.72% from 5.40% recorded in the previous week. The inter-bank volume increased to Kshs 14.10 billion from Kshs 10.85 billion. Commercial banks’ excess reserves stood at Kshs 11.0 billion which is a decrease from Kshs 13.0 billion. Remittance inflows remained resilient in December 2020 amounting to USD 299.6 million compared to USD 250.3 in December 2019, an increase of 19.7 percent. Open market operations remained active.

Fixed Income

T-Bills

The T-Bills subscription rate increased to 90.56% from 70.0% the preceding week and remained under-subscribed. The under-subscription in T-Bills is attributable to tightened liquidity and the reopening of medium-term bond papers in the market. The 91-day paper was under-subscribed at 23.91% up from 12.62%, the subscription rate for the 182-day and 364-day papers stood at 46.98% and 160.79% from 56.62% and 83.72% respectively. The yields on the 91-day paper increased marginally to 6.91% from 6.87%. The yields on 182-day and 364-day papers also increased marginally to 7.64% and 8.82% from 7.59% and 8.72% respectively.

T-Bonds

The bonds market had a high demand for the weeks bond offers. Bonds turnover increased, with bonds turnover closing in at Kshs 21.31 billion from Kshs 21.21 billion registered in the previous session. Overall subscription rate for the bonds offered was 83.72%. The reopened auctions were FXD1/2013/15 and FXD1/2012/20 with fixed coupon rates of 11.25% and 12%, and effective tenors of 6.9 years and 11.6 years respectively. The government rejected high bids only accepting Kshs 32.12 billion out of the Kshs 41.86 billion worth of bids received, translating to an acceptance rate of 76.7%.

Equities

The Equity Market closed the week with 9.71 million shares traded with equity turnover of Kshs 353.3 million against 8.61 million shares traded with equity turnover of Kshs 298.9 million in the previous week. Market capitalization increased slightly by 4.41% to Kshs 2.52 billion.

NASI, NSE 20 and NSE 25 increased by 4.40%, 1.28% and 3.87% respectively. The performance was driven by gains recorded by large-cap stocks. Top gains were recorded by BK Group, EABL and Safaricom which increased by 7.9%, 6.1% and 5.9% respectively.

The Banking sector had shares worth Kshs 135 million transacted which accounted for 38.22% of the week’s traded value, Manufacturing & Allied sector represented 23.22% and Safaricom with shares worth Kshs 750 million transacted, contributed 36.89%.

Top Losers	W-o-W
Eaagads	-9.75%
Flame Tree Group	-8.03%
NBV	-7.80%
Bamburi	-6.72%
Liberty	-5.32%

Alternative Investments

The derivatives market over the week recorded 61 contracts having a turnover of Kshs 1.9 million from 106 contracts having a turnover of Kshs 2.6 million in the previous week.

I-REIT market over the week recorded a turnover of Kshs 0.96 million with 45 deals which was an increase from Kshs 0.25 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	1.23%
Dow Jones Industrial Average (DJI)	1.00%
FTSE 100 (FTSE)	1.55%
STOXX Europe 600	1.09%
Shanghai Composite (SSEC)	4.54%
MSCI Emerging Markets Index	2.40%
MSCI World Index	1.64%

Continental Markets	W-o-W
FTSE ASEA Pan African Index	-0.54%
JSE All Share	3.17%
NSE All Share (NGSE)	-3.04%
DSEI (Tanzania)	1.16%
ALSIUG (Uganda)	3.08%

Global stock investors poured a record $58bn into stock funds this week while slashing their cash holdings, in the latest sign of the fervor sweeping global financial markets. Technology-focused funds surged, with net inflows reaching an all-time high of $5.4bn in the week. The US had the lion’s share of overall stock inflows, at $36.3bn. Investors also piled $13.1bn into global bond funds while pulling $10.6bn from their cash piles.

U.S. stocks gained over the week as the S&P 500 and NASDAQ set record closing highs at the end of the week as investors bought energy, financial and materials shares and sold big tech stocks in anticipation of new fiscal aid. The S&P energy, financial and materials sectors rose on expectations they will benefit from a reopened economy.

On the regional front, the Nigerian S E All-Share index (NGSE) plunged as Nigerian stocks recorded their biggest weekly fall in 8-years, as investors anticipated a rise in debt yields after the government laid out plans to borrow more on the domestic market.

On the global commodities, the Crude Oil WTI gained 4.61% over the week and ICE Brent Crude increased by 5.21%. Gold Futures gained 0.56% to settle at $1,823.20.

Week’s Highlights

• KRA surpassed January revenue collection by 3.53 billion to raise 142 billion against the target of 138 billion, with customs and border control collecting 54.92 billion. This is attributed to the improved economy and relaxation of Covid-19 containment measures. Exemptions and customer remissions fell by 4.8%, thus improving revenues by 283 million.

• Sameer plans to re-enter the tyre business due to sustained demand for Yana tyres and the success of Sameer’s turnaround efforts in 2020 to diversify their real estate portfolio by developing industrial properties and adding value to existing ones.

• Capital Markets Authority has hired a consultant to review its 10-year master plan of 2014-2023 to align with the prevailing market conditions. 54% of the deliverables have been achieved, such as creation of an enabling environment for the introduction of new investment products like derivatives, ETFs and REITs, admission to Global Financial Centre Index ranking and being dropped from Financial Action Task Force’s grey list of money laundering and terror financing. The biggest setback has been collapse of Imperial bank, chase bank and stock brokerage firms which impacted negatively on capital markets.

• ABSA bank has seen 40% reduction in people seeking services from its branches in the wake of the pandemic. The bank is marking one year since transition and plans to invest 1.6 billion in rolling out technology projects to transform customer experience and enhance service delivery.

• The amount of cash circulating in people’s pockets and big businesses rose to an all-time high of 233.7 billion in December due to festivities. Demand deposits fell by 4%(62 billion) from 1.45 trillion in November to 1.39 trillion in December. This is due to economic uncertainties as a result of the pandemic that made investors shun more risky portfolios like stocks and money markets and instead focused on government securities.

• Central Bank of Nigeria has banned all commercial banks and financial institutions from providing account services to cryptocurrency exchanges in the country. Nigeria however still remains the first in the world in terms of search interest for bitcoins.