Weekly Commentary – 5th March 2021

Foreign Exchange Reserves

The CBK’s usable foreign exchange reserves remained adequate at USD 7,359 million (4.52 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 all major currencies. It appreciated against the Dollar to trade at Kshs 109.65 from Kshs 109.80. It also appreciated against the Euro and the Pound to trade at Kshs 132.04 and Kshs 153.00 from Kshs 133.83 and Kshs 154.84 the previous week respectively. The strengthening of the Kenyan shilling is attributable to markets anticipating positive economic recovery as well as the arrival of AstraZeneca Covid-19 vaccines in the country.

Liquidity

Liquidity in money markets tightened, supported by government payments which were offset by tax remittances. The inter-bank rate increased to 4.87% from 4.20% recorded in the previous week. The inter-bank volume decreased to Kshs 11.52 billion from Kshs 15.19 billion. Commercial banks’ excess reserves stood at Kshs 13.5 billion which is an increase from Kshs 12.5 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 140.98% from 131.97% the preceding week and remained over-subscribed. The over-subscription in T-Bills is attributable to improved liquidity in the money market. The 91-day paper was over-subscribed at 176.13% up from 157.04%, the subscription rate for the 182-day and 364-day papers stood at 77.74% and 190.16% from 102.28% and 151.64% respectively. The yields on the 91-day paper increased marginally to 7.02% from 6.93%. The yields on 182-day and 364-day papers also increased marginally to 7.77% and 9.07% from 7.72% and 9.01% 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 18.37 from Kshs 15.08 billion registered in the previous session. During the week, the Treasury reopened two bonds. The reopened auctions were FXD1/2019/10 and FXD2/2018/20 with fixed coupon rates of 12.4% and 13.2%, and effective tenors of 8.0 years and 17.4 years respectively. The government seeks to raise 50 billion for budgetary support.

Equities

The Equity Market closed the week with 8.64 million shares traded with a turnover of Kshs 219.9 million against 10.2 million shares traded with a turnover of Kshs 352.8 million in the previous week. Market capitalization decreased slightly by 2.25% to Kshs 2.48 billion.

NASI and NSE 25 declined by 2.25% and 1.05% respectively. NSE 20 increased by 1.34%. The performance was driven by losses recorded by large-cap stocks. Top losses were recorded by Bamburi, Safaricom Plc and BAT Kenya which declined by 3.9%, 3.7% and 1.8% respectively.

The Banking sector had shares worth Kshs 494 million transacted which accounted for 23.05% of the week’s traded value, Manufacturing & Allied sectors represented 14.69% and Safaricom with shares worth Kshs 1.2 billion transacted, contributed 57.29%.

Top Losers	W-o-W
East African Portland	-10.09%
Longhorn	-7.61%
Sameer	-7.43%
Uchumi	-7.14%
WPP	-7.14%

Alternative Investments

The derivatives market over the week recorded 67 contracts having a turnover of Kshs 2.7 million from 62 contracts having a turnover of Kshs 6.7 million in the previous week.

I-REIT market over the week recorded a turnover of Kshs 0.49 million with 35 deals which is an increase from Kshs 0.44 million with 23 deals which was recorded over the close of last week.

The ETF market registered no activity during the week.

Global and Regional Markets

Global Markets	W-o-W
S&P 500	0.81%
Dow Jones Industrial Average (DJI)	1.82%
FTSE 100 (FTSE)	2.27%
STOXX Europe 600	0.91%
Shanghai Composite (SSEC)	-0.20%
MSCI Emerging Markets Index	0.00%
MSCI World Index	0.06%

Continental Markets	W-o-W
FTSE ASEA Pan African Index	-0.72%
JSE All Share	3.35%
NSE All Share (NGSE)	-1.19%
DSEI (Tanzania)	-0.12%
ALSIUG (Uganda)	0.65%

European stocks traded higher on optimism that the global vaccination program will lead to prompt economic recovery, while attention turns to the annual UK budget statement. FTSE 100 increased by 2.27% and the performance was mainly driven by positive economic data, increased uptake of vaccines, and strong corporate profits.

US indices increased during the week. Dow Jones increased by 1.82% due to the passing of the $1.9 Trillion stimulus package by the house of representatives. US Federal Reserve officials have said that inflation concerns are premature and warned that rising yields could tighten financial conditions and constrain an economic recovery.

Asian stocks declined after U.S. Treasury yields’ moves increased investor jitters. Shanghai Composite (SSEC) declined by 0.20% as investors take the precaution of inflation risk due to an unexpected spike in interest rates during the week.

On the global commodities, the Crude Oil WTI increased by 7.46% over the week and ICE Brent Crude increased by 4.88%. Gold Futures declined by 1.75% to settle at $1698.50.

Week’s Highlights

• NSE has introduced real-time derivatives market data on the Elektron Real-Time platform offered by Refinitiv. This will attract foreign investors and provide other investors with real-time updates on the bourse’s single stock futures thus enabling them to make faster and informed decisions.

• Kenya can now enter into an Economic Partnership agreement with Europe after EAC retracted its previous position that restricted member states from validating the deal. The signing of the deal was delayed because some states wanted a provision for special export taxes so as to protect certain sensitive sectors such as agriculture and to discourage the exportation of raw materials to Europe.

• IMF has raised Kenya’s economic growth forecast from 4.7% to 7.6% after reaching a 3-year financing agreement worth $2.4 billion with Kenyan authorities, which aims at supporting the country’s Covid-19 response and reducing debt levels relative to the GDP. IMF program is based on revenue-led fiscal consolidation and strong economic growth as Kenya expects a steady increase in tax revenue.

• Interest rates on government debts are expected to continue rising this year due to the governments’ fiscal position and fluctuating liquidity in the market. Increased debt service, large budget deficits, and revenue underperformance will exert pressure on interest rates.

• Cash handled by mobile agents in January rose by 58% to 590.36 billion from 371.9 billion in January 2020, indicating an increased preference for cashless platforms to settle transactions. This growth is as a result of the removal of mobile-bank account transfer fees and charges on transactions below Kshs 1,000 as well as CBK’s move to increase the daily transactions limit to Kshs 140,000 and money held in mobile wallets.

• The Central Bank of Somalia has issued the first mobile money license to the country’s largest telecommunications provider, Hormuud Telecom as it seeks to formalize the country’s digital payment system and integrate it with the global financial system. With the license, it will be subject to central bank regulation, thus boosting confidence in the country’s mobile money system.