Weekly Commentary – 27th May 2022

Foreign Exchange Reserves

The CBK’s usable foreign exchange reserves remained adequate at USD 8,177 million (4.86 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 to close the week at Ksh. 116.69 per Dollar, Ksh. 147.13 per Pound and Ksh. 124.76 per Euro. The observed overall depreciation against the Dollar is attributable to increased Dollar demand from energy and commodity importers.

	YTD Change	W-o-W Change
Dollar	3.14%	0.24%
Euro	-3.42%	1.37%
Sterling Pound	-2.60%	1.81%

Liquidity

Liquidity in the money markets eased, partly reflecting government payments which offset tax remittances. Open market operations remained active.

	Week (previous)	Week (ending)
Interbank rate	4.44%	4.57%
Interbank volume (billion)	18.27	14.39
Commercial banks’ excess reserves (billion)	22.80	15.10

Fixed Income

T-Bills

T-Bills were under-subscribed during the week with a decrease in the overall subscription rate from 116.30% recorded in the previous week to 54.42%. The 364-day T-Bill got the highest subscription rate at 97.2% while the 182-day T-Bill and 91-day T-Bill had a subscription rate of 28.5% and 12.4% respectively. The decrease in subscription is attributed to concurrent sale of government bonds in the primary market. The acceptance rate increased by 13.87% to close the week at 95.80%.

T-Bonds

The bonds market had a higher demand for the week’s bond offers. Bonds turnover increased by 2.56% from 13.81B in the previous week to 14.17B. Total bond deals increased by 3.7%.

In the primary bond market, the government issued a 18-year Infrastructure bond issue number IFB/2022/18 aiming to raise Kshs 75B for funding of Infrastructure projects in the FY

2021/2022 budget estimates. Sale for the bond will close on 07/06/2022 and the coupon rate will be market determined. Also, the 10yr and 25yr bonds tap sale raised 16.9B against the targeted 10B. The coupon rates were set at 13.49% and 13.92% and the yields were set at 13.49% and 13.98% for the 10yr and 25yr bonds respectively.

Eurobonds

In the international market, the yields on the 10-year Eurobonds for Angola and Ghana declined. Yields on Kenya’s Eurobonds generally fell by 1.43% on average but still remain positive at 0.19% and 4.22% month on month and year to date respectively. Below is a summary analysis of performance for individual bonds.

Bond	YTD Change	M-o-M Change	W-o-W Change
2014 10-Year Issue	6.26%	1.90%	-1.65%
2018 10-Year Issue	4.56%	0.31%	-1.22%
2018 30-Year Issue	2.85%	-0.11%	-1.05%
2019 7-Year Issue	4.94%	0.05%	-1.88%
2019 12-Year Issue	3.63%	-0.51%	-1.38%
2021 12-Year Issue	3.06%	-0.50%	-1.41%

Equities

NASI and NSE 25 decreased by 2.02%, 0.66% while NSE 20 increased by 0.43% compared to last week bringing the year to date performance down to -22.30%, -18.36% and -11.83% respectively. The market capitalization also decreased by 2.03% to 2.023 trillion. The performance was driven by loses recorded by large-cap stocks. Top loses were recorded in Safaricom, Equity and EABL which decreased by 4.86%, 1.57% and 1.23% respectively.

The Banking sector had shares worth Kshs 272M transacted which accounted for 20.4% of the week’s traded value, Manufacturing & Allied sector had shares worth 51M transacted which represented 3.82% and Safaricom, with shares worth Kshs 961M transacted represented 71.78% of the week’s traded value.

Top Losers	YTD Change	W-o-W
Kapchorua Tea	-10.55%	-6.81%
Eveready	-24.76%	-5.95%
Sanlam	21.21%	-5.72%
Uchumi	-21.74%	-5.26%
Safaricom	-30.67%	-4.86%

Alternative Investments

	Week (previous)	Week (ending)	% Change
Derivatives Turnover (million)	2.08	1.50	-27.79%
Derivatives Contracts	14	27	92.86%
I-REIT Turnover	0.85	0.29	-65.76%
I-REIT Deals	55	37	-32.73%

Global and Regional Markets

Global Markets	YTD Change	W-o-W
S&P 500	-13.31%	6.58%
Dow Jones Industrial Average (DJI)	-9.22%	6.24%
FTSE 100 (FTSE)	1.07%	2.65%
STOXX Europe 600	-9.40%	2.97%
Shanghai Composite (SSEC)	-13.82%	-0.52%
MSCI Emerging Markets	-15.43%	0.76%
MSCI World Index	-13.54%	5.52%

Continental Markets	YTD Change	W-o-W
FTSE ASEA Pan African Index	-10.84%	-2.51%
JSE All Share	-4.69%	4.73%
NSE All Share (NGSE)	25.70%	2.09%
DSEI (Tanzania)	0.05%	1.27%
ALSIUG (Uganda)	-14.17%	-0.24%

U.S stocks closed the week low, as gains in the Technology, Consumer Services and Industrials sectors led shares higher. Investors sentiments improved as data pointing to cooling inflation and strength in the consumer renewed optimism on growth sectors. The core personal consumption expenditures rose 4.9% in the 12 months through April, slower than the 3.2% reported in the prior month.

European stocks closed the week high as investors held a cautious stance ahead of release of the US inflation data. Investors are optimistic as the Federal Reserve minutes suggested the central bank could slow its tightening should inflation be on a downward trend. The European Central bank has however shown signs of tightening of monetary policy in July.

Asia Pacific stocks closed the week high, taking cues from both a rebound in U.S. counterparts and the latest earnings suggesting that the U.S. economy remains strong despite high inflation. Japan, South Korea, Australia and China reported an increase at the end of the week. However, the Chinese market remains on a negative position week on week.

On the global commodities markets, Crude Oil WTI closed the week higher by 4.28% and the ICE Brent Crude increased by 2.13%. Gold futures prices increased by 0.35% to settle at $1,851.64.

Week’s Highlights

1. The Kenya Bankers Association (KBA) has urged the Central Bank of Kenya CBK) to raise the policy rate when the Monetary Policy Committee meets on 30^th May. This advise comes amid rising inflationary concerns. KBA argues that this will support market and macroeconomic stability in the near term. The MPC maintained the rate at 7% during the last meeting.
   
2. Parliament discussed amendments proposed in the Finance Bill 2022, through its Finance & Planning Committee and came up with the following conclusions.

• The proposed amendments to the Tax Appeals Tribunal Act that requires a 50% downpayment of disputed tax amount before an appeal is made was rejected on the grounds that this will erode businesses’ working capital and affect cash flow.
• Excise tax on betting will not be increased as the sector is already heavily taxed.
• The proposal to widen excise tax to cover locally manufactured bottles was rejected to protect manufacturers.
• Excise tax on advertisement of alcoholic beverages and betting is capped at 5% against the proposed increase to 15%.
• Capital Gains Tax (CGT) on property disposal is to be raised from 5% to 10% against the proposed 15% without indexation on buying price.

3. According to projections by the African Development Bank (AfDB), Kenya’s GDP growth is projected to slow down to 5.7% in 2023 from 5.9% this year. In the East African Community (EAC), Rwanda will retain the fastest GDP growth in 2023 at 7.9%, followed by South Sudan and the Democratic Republic of Congo (DRC) both at 6.5%, Uganda at 6.2%, Tanzania at 5.6% and Burundi at 4.6%.
   
4. Ghana’s central bank raised its main interest rate by 200 basis points to 19% and Nigeria followed suite by raising its benchmark interest rate for the first time in six years by 150 basis points to 13% to control inflationary pressures and promote macroeconomic stability. Inflation has continued rising with South Africa depleting its fuel subsidy resulting to record-high gasoline prices in June and Tanzania Recording a Deficit of $1.31 Billion in Q1 2022 on High Import Bills.