Weekly Commentary – 25th June 2021

Foreign Exchange Reserves

The CBK’s usable foreign exchange reserves remained adequate at USD 8,114 million (4.96 months of import cover). This meets CBK’s statutory requirement to endeavour 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, the Euro and the Sterling Pound. The appreciation of the shilling is attributable to subdued dollar demand from importers.

	Week Before	Week After
Dollar	107.80	107.75
Euro	129.66	128.60
Sterling Pound	151.26	150.14

Liquidity

Liquidity in the money markets improved, supported by Government payments that partly offset tax remittances. Open market operations remained active.

	Week Before	Week After
Interbank rate	4.39%	4.80%
Interbank volume (billion)	5.02	13.84
Commercial banks’ excess reserves (billion)	15.30	10.30

Fixed Income

T-Bills

The Treasury Bills remained over-subscribed. The oversubscription in the 91-day T-Bill is partly attributable to investors’ preference for holding onto the shorter-dated paper since it currently offers a better risk-adjusted return. However, the yields for the T-Bills continued to decline. This was attributed to the Government continuing to reject high bids as the current fiscal year comes to an end after achieving the net domestic borrowing target.

T-Bill	Yield (% Rate)		Subscription Rate
	Week Before	Week After	Week Before	Week After
Overall			152.87%	105.62%
91 day	7.00%	6.86%	205.04%	267.71%
182 day	7.54%	7.32%	112.52%	56.04%
364 day	8.11%	7.73%	152.87%	105.62%

T-Bonds

The bonds market had a high demand for the week’s bond offers. Bonds turnover increased to Kshs 31.50 billion from Kshs 20.53 billion the previous week.

The Treasury has issued a tap sale for two previously reopened bonds: FXD1/2019/20 and FXD2/2012/20 with coupon rates of 12.87% and 12.00%, and effective tenors of 17.9 years and 11.4 years respectively.

In the international market, yields on Kenya’s 10 year Eurobond declined by an average of 0.26 basis points. The yields for Angola’s 10-year Eurobond and that of Ghana also declined marginally. The yield for the recently issued 12 year Eurobond traded well at 6.23%.

Equities

NASI and NSE 20 declined by 0.44% and 0.11% respectively, while NSE 25 increased by 0.05%. Market capitalization also declined marginally by 0.44% to 2.67 trillion. The performance was driven by losses recorded by large-cap stocks. Top losses were recorded in BAT and EABL which declined by 4.1% and 4.0% respectively.

The Banking sector had shares worth Kshs 1.16B transacted, which accounted for 34.66% of the week’s traded value. Manufacturing & Allied sector represented 8.25% and Safaricom with shares worth Kshs 1.7B transacted, represented 52.02%.

Top Losers	W-o-W
Transcentury	-11.26%
Limuru Tea	-5.88%
Kenya Power	-4.11%
BAT	-4.11%
East Africa Breweries Limited	-3.97%

Alternative Investments

	Week Before	Week After	% Change
Derivatives Turnover (million)	10.50	6.58	-37.31%
Derivatives Contracts	300	164	-45.33%
I-REIT Turnover (million)	0.55	0.22	-59.66%
I-REIT Total Deals	34	49	44.12%

Global and Regional Markets

Global Markets	W-o-W
S&P 500	2.74%
Dow Jones Industrial Average (DJI)	3.44%
FTSE 100 (FTSE)	1.69%
STOXX Europe 600	1.23%
Shanghai Composite (SSEC)	2.34%
MSCI Emerging Markets Index	1.35%
MSCI World Index	2.39%

Continental Markets	W-o-W
FTSE ASEA Pan African Index	0.79%
JSE All Share	1.07%
NSE All Share (NGSE)	-2.56%
DSEI (Tanzania)	0.99%
ALSIUG (Uganda)	0.95%

European stocks traded mixed amidst travel concerns. The UK government widened its list of countries that British tourists can fly to without having to quarantine on their return. However, concerns are growing that the changes to the list were still too restrictive to revive the key summer holiday period, leaving travel stocks out of favour. FTSE 100 outperformed its European peers, boosted by energy and mining stocks. The Bank of England, which considers the spike in inflation to be transitory, remains in a wait-and-see mood with the accommodative policy-keeping stocks underpinned.

Major indices in the US and Asia Pacific stock market ended higher on the back of the announcement of President Joe Biden’s bipartisan infrastructure program worth USD 579 billion. The S&P 500 also ended the week high, supported by weaker than expected inflation data that eased worries about a sudden tapering in stimulus by the US Federal Reserve.

Crude Oil WTI closed the week high by 3.36% on the global commodities markets and the ICE Brent Crude also increased by 3.63%. Gold futures prices increased by 0.50% to settle at $1,777.80.

Week’s Highlights

• The IMF executive board has completed the first reviews of the 38-month Extended Fund Facility (EFF) and Extended Credit Facility (ECF) arrangements with Kenya, allowing for an aggregate immediate disbursement of USD 407 million for budget support, addressing debt vulnerabilities, supporting Covid-19 response and enhancing governance. This brings Kenya’s total disbursement for budget support to about USD 714.5 million.

• Liberty Holdings, a leading South African financial services company and a major shareholder in Liberty Kenya Holdings seeks to purchase an additional 84.2 million shares in Liberty Kenya Holdings through a private transaction. The firm already owns 309.33 million ordinary shares in Liberty Kenya, equivalent to 57.7% of the company plans to increase its shareholding to 73.5%. Liberty Holdings plans to acquire the shares at a price of Kshs 11 per share, a 39% premium to the current price of Kshs 7.92.

• The Family Bank has raised Kshs 4.42 billion against a target of Kshs 3 billion from the recent medium-term note – a subscription of 147.3%. The bond which is priced at 13.0% per annum and has an effective tenor of 5.5 years attracted interest from local fund managers, banks, retail investors, insurance companies and other institutional investors. This comes after the lender successfully redeemed its 5.5-year medium-term note worth Kshs 2.02 billion.

• The cost of credit is set to rise from July after MPs rejected a plea from bankers to exclude fees and commissions earned from 20% excise duty, citing erosion of tax base and will have a negative impact on the objective of reducing tax expenditure. The Kenya Bankers Association argues that the imposition of this excise duty will raise borrowing costs and affect access to credit.

• In Nairobi’s prime areas, monthly office rent dropped by Kshs 19.40 per square foot in the year to march on subdued demand. Asking rent also dropped to $1.12 from $1.3 per square foot in a similar period last year, leading to savings of at least Kshs 1940 per 100 square feet of office space. This was attributed to the continued oversupply of commercial spaces, working from home and adverse economic effects in the wake of the pandemic. Nairobi’s monthly prime rent, which averages at Kshs 1,293, is ranked in the sixth position alongside Lilongwe. Lagos and Lwanda take the lead at Kshs 6,734 and Kshs 5,926 respectively.

• Stalled projects, among them dams and irrigation projects in the last two regimes have piled to Kshs 9 trillion – an equivalent of Kenya’s entire economy. This has been a major contributor to the cash crunch in the private sector as a result of pending bills. In the recent budget, the government intends to cancel about a third of the projects that could save Kshs 152.3 billion out of Kenya’s Kshs 10 trillion economy.