Monthly Market Commentary – May 2021

ECONOMIC INDICATORS

Foreign Exchange Reserves

During the month, the CBK’s usable foreign reserves declined by 2.40% to stand at USD 7.48 billion (4.57 months of import cover). However, this meets the CBK’s statutory requirement to endeavour to maintain at least 4 months of import cover, and the EAC region’s convergence criteria of 4.5 months of import cover.

Currency

The Kenyan Shilling gained against the USD by 0.28% exchanging at Kshs 107.54 at the end of the month down from Kshs 107.84 in the previous month. This was due to an adequate supply of dollars from exporters amid a drop in demand from commodity importers. Despite this, there has been rising uncertainties in the global market due to the COVID-19 pandemic which has seen investors prefer to hold their investments in dollars.

USD Vs KSHS

STERLING POUND Vs KSHS

Inflation

The overall year-on-year inflation increased to 5.87% in May, up from 5.76% in April. The increase is attributable to the increase in the food and non-alcoholic beverages index by 0.32% due to increased prices, such as onion leeks and kale (sukuma wiki), which increased by 5.03% and 3.41%. In addition, the transport index increased by 0.69% due to an increase in the pump price of petrol by 2.87%.

INFLATION EVOLUTION

Liquidity

During the month of May, liquidity tightened with the inter-bank rate increasing marginally to 4.96% from 4.83% the previous month. The volume of inter-bank transactions increased to Kshs 15.71 billion from Kshs 9.70 billion. Commercial banks’ excess reserves increased to Kshs 15.5 billion from Kshs 13.0 billion the previous month.

INTER-BANK RATE and VOLUME

FIXED INCOME

T-Bills

The T-bills recorded an overall subscription rate of 95.97% at the end of the month of May, compared to 80.35% recorded in the previous month. The increase in subscriptions is due to the easing of liquidity from the lowering of the Cash Reserve Ratio. The performance of the 91-day, 182-day and 364-day papers stand at 83.44%, 49.02% and 147.94% respectively. On a monthly basis, the yields on the 91-day papers remained unchanged while yields on 182-day and 364-day papers decreased by 1.55% and 3.36% respectively to 7.87% and 9.16%.

T-BILLS

T-Bonds

Over the month of May, the T-Bonds registered a total turnover of Kshs. 80.33 billion from 1,649 bond deals. This represents a monthly increase of 6.22% in turnover and a decrease of 27.77% in bond deals respectively.

In the international market, yields on Kenya’s Eurobonds declined by an average of 14.5 basis points.

YIELD CURVE

EQUITIES

During the month of May, NASI and NSE 25 increased by 2.09% and 1.03% respectively while NSE 20 declined marginally by 0.24% on a monthly basis. On a weekly basis, the NASI, NSE 20 and NSE 25 increased by 4.18, 0.18% and 3.52%. The increase in NASI is a result of gains of large-cap stocks such as East Africa Breweries Ltd, Equity Group Holdings Ltd, ABSA Bank Kenya Plc and Safaricom. At the close of the month, market capitalization increased by 3.46% to Kshs 2.69 trillion. Also, total shares traded and equity turnover increased to 29.6 million and 825.9 million from 13.4 million and 465.3 million respectively the previous month.

NASI, FTSE NSE 15 and FTSE NSE 25

NSE 20 and NSE 25

ALTERNATIVE INVESTMENTS

• The derivatives market over the month recorded 433 contracts having a turnover of Kshs 28.32 million which was an increase from 227 contracts having a turnover of Kshs 27.97 million recorded over the last month.

• The I-REIT market over the month recorded 166 contracts having a turnover of Kshs 1.09 million which was a decrease from 280 contracts having a turnover of Kshs 9.48 million recorded over the last month.

• The ETF market recorded a turnover of Kshs 1.30 million from 1 deal.

GLOBAL AND REGIONAL MARKETS

• During the month, major global markets gained due to investor confidence from news that the US president plans to propose a $6 trillion budget for the 2022 fiscal year. In the USA, the S&P 500 and Dow Jones indices gained by 0.55% and 1.92% respectively from the previous month. In Europe, the continental index of STOXX Europe 600 and the UK’s FTSE 100 gained by 2.65% and 0.76% respectively.

• On a regional front, most markets gained over the month. The FTSE ASEA Pan African index, representing the overall African markets, increased by 2.00% from the month of April. South Africa’s JSE All Share gained by 0.41%, Uganda’s All Share Index gained by 4.54%, and Tanzania’s DSEI increased by 5.35%. However, Nigeria’s All-share index declined by 3.97%.

• On the global commodities markets, the oil prices increased due to investor optimism over fuel demand in the next quarter. The Crude Oil WTI futures increased by 4.47% from the previous month of April. Also, the ICE Brent Crude Oil increased in value by 4.46%. Gold futures gained by 7.73% as gold prices increased due to the weakening of the dollar and lower bond yields in the economic data released by China, the world’s largest gold consumer.