Weekly Commentary – 6th August 2021

Foreign Exchange Reserves

The CBK’s usable foreign exchange reserves remained adequate at USD 9,352 million (5.72 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, the Euro and the Sterling Pound. This is attributable to increased dollar demand from importers.

	Week Before	Week After
Dollar	108.61	108.72
Euro	128.69	128.74
Sterling Pound	151.20	151.37

Liquidity

Money markets remained relatively liquid, supported by tax remittances which offset government payments. Open market operations remained active.

	Week Before	Week After
Interbank rate	3.19%	3.19%
Interbank volume (billion)	4.35	10.52
Commercial banks’ excess reserves (billion)	16.20	10.60

Fixed Income

T-Bills

The Treasury Bills remained under-subscribed. The undersubscription in T-Bills is attributable to reopening of a tap sale in the primary bond market in the week.

T-Bill	Yield (% Rate)		Subscription Rate
	Week Before	Week After	Week Before	Week After
Overall			74.18%	99.76%
91 day	6.49%	6.51%	212.38%	152.34%
182 day	6.97%	7.05%	64.98%	150.20%
364 day	7.43%	7.42%	28.09%	28.30%

T-Bonds

The bonds market had low demand for the week’s bond offers. Bonds turnover decreased to Kshs 21.06 billion from Kshs 22.37 billion previous week.

In the primary market, the Treasury has reopened two auctions FXD3/2019/10 and FXD1/2018/20, and issued a new bond FXD1/2021/20 with effective tenors of 8.1 years,16.7 years and 20 years respectively. The Treasury seeks to raise Kshs 60 billion.

In the international market, yields on Kenya’s 10 year Eurobond declined by an average of 1.6 basis points. The yields for Angola’s 10-year Eurobond and that of Ghana also remained relatively stable.

Equities

NASI, NSE 20 and NSE 25 increased by0.55%, 0.01% and 0.70% respectively. Market capitalization also decreased by 0.56% to 2.78 trillion. The performance was driven by gains recorded by large-cap stocks. Top gains were recorded in KCB Group, Equity Group and Standard Chartered Bank Kenya which gained by2.3%, 2.2% and 1.2% respectively.

The Banking sector had shares worth Kshs 379M transacted which accounted for 25.43% of the week’s traded value, Manufacturing & Allied sector represented 12.75% and Safaricom with shares worth Kshs 751M transacted, represented 50.40%.

Top Losers	W-o-W
Nairobi Business Ventures	-15.94%
Sameer	-9.74%
TP Serena	-6.44%
Kengen	-4.54%
Transcentury	-4.38%

Alternative Investments

	Week Before	Week After	% Change
Derivatives Turnover (million)	2.30	4.31	87.60%
Derivatives Contracts	103	110	18.39%
I-REIT Turnover (million)	0.41	2.58	526.27%
I-REIT Total Deals	55	58	5.45%
Exchange Traded Funds	0	0

Global and Regional Markets

Global Markets	W-o-W
S&P 500	0.94%
Dow Jones Industrial Average (DJI)	0.78%
FTSE 100 (FTSE)	1.29%
STOXX Europe 600	1.78%
Shanghai Composite (SSEC)	1.79%
MSCI Emerging Markets	1.15%
MSCI World Index	0.94%

Continental Markets	W-o-W
FTSE ASEA Pan African Index	0.79%
JSE All Share	-0.55%
NSE All Share (NGSE)	0.68%
DSEI (Tanzania)	-0.12%
ALSIUG (Uganda)	0.13%

European stocks traded higher, on a run of strong quarterly earnings and hopes of a broader rebound drove buying in economy-linked sectors. UK stocks also edged higher after the London Stock Exchange reporting a sharp rise in first-half revenues, along with progress integrating data group Refinitiv and a dividend increase, triggering the best daily performance in its shares so far this year.

US stocks closed the week higher, following stronger-than-expected jobs report, while investors shrugged off concerns over the Delta variant impacting a nascent economic recovery. Focus now turns to a meeting of Federal Reserve leaders later this month to discuss policy and decide future stimulus strategy.

Chinese stocks closed the week high after China Telecom Corporation set the price for a share sale in Shanghai in which it plans to raise about $7.3 billion, months after it was cut off from U.S. markets. This would be the world’s biggest new listing in more than a year, highlighting the huge sums that Chinese corporate champions can access by tapping a domestic investor base.

On the global commodities markets, Crude Oil WTI closed the week low by 7.67% and the ICE Brent Crude also decreased by 7.38%. Gold futures prices declined by 2.73% to settle at $1,763.10.

Week’s Highlights

• Stanbic Bank released its monthly Purchasing Managers’ Index (PMI) for the month of July, which decreased to 50.6 from 51.0 in the month of June 2021. This shows that business conditions in Kenya’s private sector expanded, but at a slower rate compared to June. The slow expansion was attributed to cost inflationary pressures which rose to a 16-month high as tax changes resulted in a sharp uptick in purchase prices.

• Kenya’s current account deficit has widened to 5.4% of GDP in the 12 months to June from 5.2% in the corresponding period last year. This is attributed to lower service receipts, which offset the increased receipts from exports and remittances. The higher deficit is an indication of the negative impact of the Covid19 crisis on Kenya’s economy.

• Foreign investor outflows from the Nairobi Securities Exchange surged to Kshs 2 billion in the second quarter of the year, compared to Kshs 976 million in the first quarter of the year, despite the market capitalization increasing by Shs 262.94 billion in the last six months. The net selling is partly due to profit-taking as foreign investors reduce their trading volumes in their markets as well as in the emerging frontier markets.

• Private sector lending grew at an annualized rate of 7.7% compared to 6.8% in April. The growth is attributed to an increase in economic activities in the last few months as Covid-19 restrictions eased as well as demand of the government’s State-backed Credit Guarantee Scheme which was launched last October to protect the small and medium enterprises (SMEs) from the impact of the pandemic.

• East Africa corporate deals halved in the first half of the year as compared to the same period last year. The disclosed value recorded a sharp fall from $716 million in the first half of 2020 to $377 million this year. Private equity and development finance (DFI) investment deals account for the largest number at 21, followed by venture capital with 17 and merger acquisitions at 10. The underperformance is attributed to the impact of Covid-19 as it continued to weigh on cross-border investment activity.

• Banks will now have more money to lend towards home ownership after the Central Bank of Kenya (CBK) reduced the capital required to back mortgages from 50% to 35%. According to the CBK, the adjustments are likely to encourage banks to issue more mortgages without raising fresh capital. Kenya Mortgage Refinance Company (KMRC) is expected to increase the uptake of domestic residential mortgage by providing long-term loans to major mortgage lenders such as banks and savings and credit co-operatives.