Weekly Commentary – 19th February 2021

Foreign Exchange Reserves

The CBK’s usable foreign exchange reserves remained adequate at USD 7,605 million (4.67 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 Sterling Pound to trade at Kshs 109.55 and Kshs 152.66 from Kshs 109.44 and Kshs 151.44 respectively. It however appreciated against the Euro to trade at Kshs 132.29 from Kshs 132.79. The weakening of the Kenyan shilling is attributable to increased dollar demand from the energy sector and other general goods importers.

Liquidity

Money markets remained relatively liquid supported by government payments which partly offset tax remittances. The inter-bank rate decreased to 4.01% from 4.49% recorded in the previous week. The inter-bank volume decreased to Kshs 12.52 billion from Kshs 13.60 billion. Commercial banks’ excess reserves stood at Kshs 10.9 billion which is a decrease from Kshs 11.0 billion. Remittance inflows increased 7.32% on a yearly basis to USD 278.40 in January 2021 from USD 259.4 in January 2020. Open market operations remained active.

Fixed Income

T-Bills

The T-Bills subscription rate increased to 124.91% from 90.56% the preceding week and was over-subscribed. The over-subscription in T-Bills is attributable to tightened liquidity in the money market. The 91-day paper was over-subscribed at 116.86% up from 23.91%, the subscription rate for the 182-day and 364-day papers stood at 114.03% and 139.01% from 46.98% and 160.79% respectively. The yields on the 91-day paper increased marginally to 6.911% from 6.905%. The yields on 182-day and 364-day papers also increased marginally to7.68% and 8.93% from 7.64% and 8.82% respectively.

T-Bonds

The bonds market had a high demand for the weeks bond offers. Bonds turnover decreased, with bonds turnover closing in at Kshs 16.52 billion from Kshs 21.31 billion registered in the previous session. Overall subscription rate for the bonds offered was 62.42%. The reopened auctions were FXD1/2013/15 and FXD1/2012/20 with fixed coupon rates of 11.25% and 12%, and effective tenors of 7.1 years and 11.8 years respectively. The government rejected high bids only accepting Kshs 10.91 billion out of the Kshs 11.24 billion worth of bids received, translating to an acceptance rate of 97.10%.

Equities

The Equity Market closed the week with 18.3 million shares traded with a turnover of Kshs 488.5 against 9.71 million shares traded with equity turnover of Kshs 353.3 million in the previous week. Market capitalization increased slightly by 0.93% to Kshs 2.54 billion.

NASI and NSE 25 increased by 0.93% and 0.73% respectively. NSE 20 declined by 0.07%. The performance was driven by gains recorded by large-cap stocks. Top gains were recorded by KCB Group, Diamond Trust Bank and BK Group which increased by 4.0%, 2.5% and 2.4% respectively.

The Banking sector had shares worth Kshs 780 million transacted which accounted for 31.54% of the week’s traded value, Manufacturing & Allied sectors represented 16.54% and Safaricom with shares worth Kshs 1.1 billion transacted, contributed 44.85%.

Top Losers	W-o-W
Olympia Capital	-12.28%
Flame Tree Group	-10.77%
Sanlam	-10.62%
Eveready	-9.01%
Unga Limited	-7.81%

Alternative Investments

The derivatives market over the week recorded 56 contracts having a turnover of Kshs 2.7 million from 61 contracts having a turnover of Kshs 1.9 million in the previous week.

I-REIT market over the week recorded a turnover of Kshs 1.36 million with 45 deals which was an increase from Kshs 0.96 million recorded over the close of last week.

The ETF market registered one contract with a turnover of Kshs 54,166,000 during the week.

Global and Regional Markets

Global Markets	W-o-W
S&P 500	-0.71%
Dow Jones Industrial Average (DJI)	0.11%
FTSE 100 (FTSE)	0.52%
STOXX Europe 600	0.21%
Shanghai Composite (SSEC)	1.12%
MSCI Emerging Markets Index	0.08%
MSCI World Index	-0.44%

Continental Markets	W-o-W
FTSE ASEA Pan African Index	-1.51%
JSE All Share	2.21%
NSE All Share (NGSE)	-0.63%
DSEI (Tanzania)	0.04%
ALSIUG (Uganda)	1.04%

Global stock investors have been rattled this week by rising U.S. Treasury yields, and concerns about higher inflation which caused a recent rally in global markets to seemingly fizzle out. U.S. Treasury Secretary Janet Yellen called for fiscal stimulus. She noted that a large stimulus package is still necessary to get the economy firing on all cylinders again. U.S. stocks got a boost from her comments, with all the major indexes climbing.

The FTSE 100 index gained as European stock markets edged higher. Investors focused on corporate earnings with the likes of banking giants Credit Suisse and Barclays reporting. European markets have rallied strongly of late, helped by the belief that the rollout of Covid-19 vaccines will lead to a sharp increase in economic growth and also by a strong earnings season.

On the regional front, the JSE All Share index surged as South Africa’s rand edged up this week ahead of a budget speech next week, while a softer dollar limited losses for most other emerging market currencies after weak U.S. jobs data dulled hopes of a global economic recovery.

On the global commodities, the Crude Oil WTI declined 0.39% over the week and ICE Brent Crude increased by 0.77%. Gold Futures declined 2.51% to settle at $1,777.40.

Week’s Highlights

• EPRA reviewed fuel prices upwards, citing higher landing costs of imported fuel. Petrol increased by Kshs 8.19 to retail at Kshs 115.18 while diesel and kerosene increased by Kshs 5.51 and Kshs 5.32 per liter respectively. Fuel cost charge for February also increased to Kshs 2.61 per kilowatt-hour from 2.58 the previous month, putting pressure on struggling businesses and households.

• KRA collections from income tax and VAT fell by 58.2 billion and 32.5 billion to 488.31 billion and 179.07 billion respectively in the first half of this fiscal year as a result of tax reliefs extended to cushion Kenyans from the impact of the pandemic and depressed sales as a result of reduced consumer purchasing power. They are however targeting to raise 164 billion in form of digital service tax to boost their revenue this year.

• Safaricom, BAT, and EABL share prices increase accounted for 92.3% of appreciation of all shares at the NSE. This distortion of performance by blue-chip stocks has made it difficult for investors to measure the true performance of the bourse. The Capital Markets Authority has flagged the dominance of five companies at NSE as a big risk since the performance of their shares dictates whether the market goes up or down.

• The Treasury plans to ask parliament to raise the country’s debt ceiling, following the public debt stock that is fast approaching the Kshs 9 trillion’s statutory ceiling set out in the Public Finance Management Act, so as to accommodate growing expenditure needs amid under-performing tax collections.

• The share of domestic debt held in form of T-bills has dropped to a 33-month low by over 102.3 billion to account for 22.5% of total securities compared to 30.1% in the previous year. This is in line with the government’s efforts to lengthen the maturity profile of government securities and reduce refinancing risk.