Weekly Commentary – 15th January 2021

Foreign Exchange Reserves

The CBK’s usable foreign exchange reserves remained adequate at USD 7,807 million (4.80 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 but strengthened against the Euro to trade at Ksh 110.10 and Ksh 133.99 from Ksh 109.55 and Ksh 134.52 respectively. The Shilling depreciated against the Sterling Pound to trade at Ksh 150.18 an increase of 87 basis points. The increase in the dollar is attributable to subdued dollar demand from importers.

Liquidity

Money markets remained relatively liquid supported by government payments which partly offset tax remittances. The inter-bank rate decreased to 4.61% from 6.18% recorded in the previous week. The inter-bank volume increased to Ksh 13.02 billion from Ksh 4.81 billion. Commercial banks’ excess reserves stood at Ksh 13.00 billion which is a decrease from Ksh 15.70 billion. Open market operations remained active.

Fixed Income

T-Bills

The T-Bills subscription rate increased to 110.13% up from 65.70% the preceding week and became over-subscribed. The over-subscription in T-Bills is attributable to high liquidity in the money markets. The 91-day paper was oversubscribed at 125.37% up from 18.70%, the subscription rate for the 182-day and 364-day papers stood at 81.02% and 133.15% from 50.00% and 100.21% respectively. The yields on the 91-day paper decreased marginally to 6.88% from 6.90%, the yields on 182-day and 364-day papers increased marginally to 7.52% and 8.45% from 7.48% and 8.36% respectively.

T-Bonds

The bonds market had high demand for the weeks bond offers. Bonds turnover remained constant from the previous week with bonds turnover closing in at Kshs 7.33 billion from Kshs 6.43 billion registered in the previous session. Overall subscription rate for the bond offered was 244.60%. The re-opened auction was FXD2/2021/02 with fixed coupons of 9.5% and effective tenor of 1.9 years. The government rejected high bids only accepting Kshs 55.9 bn out of the Kshs 61.2 bn worth of bids received, translating to an acceptance rate of 91.4%.

Equities

The Equity Market closed the week with 23.9 million shares traded with equity turnover of Kshs 773 million against Kshs 9.2 million shares traded with equity turnover of Kshs 238 million in the previous week. Market capitalization increased slightly by 2.61% to Kshs 2.43 billion.

NASI, NSE 20 and NSE 25 increased by 2.60%, 1.23% and 1.32% respectively. The performance of the NASI was driven by gains recorded by large-cap stocks with the top gains being recorded in BK Group, Safaricom Plc and Equity Group which increased by 6.5%, 4.4% and 2.5% respectively.

The Banking sector had shares worth Kshs 651m transacted which accounted for 31.23% of the week’s traded value, Manufacturing & Allied sector represented 4.40% and Safaricom with shares worth Kshs 36m transacted, contributed 62.05%.

Top Losers	W-o-W
Uchumi	-17.24%
Sameer	-12.47%
Home Afrika	-10.00%
Transcentury	-9.33%
Express	-8.56%

Alternative Investments

The derivatives market over the week recorded 41 contracts having a turnover of Kshs 1.9 million from 32 contracts having a turnover of Kshs 0.7 million in the previous week.

I-REIT market over the week recorded a turnover of Kshs 0.41 million with 56 deals which was a decrease from Kshs 0.63 million recorded over the close of last week.

The ETF market registered no activity.

Global and Regional Markets

Global Markets	W-o-W
S&P 500	-1.48%
Dow Jones Industrial Average (DJI)	-0.91%
FTSE 100 (FTSE)	-2.00%
STOXX Europe 600	-0.81%
Shanghai Composite (SSEC)	-0.10%
MSCI Emerging Markets Index	0.33%
MSCI World Index	-1.40%

Continental Markets	W-o-W
FTSE ASEA Pan African Index	1.17%
JSE All Share	0.04%
NSE All Share (NGSE)	2.62%
DSEI (Tanzania)	-0.79%
ALSIUG (Uganda)	-0.24%

Global stocks markets had a mixed performance. The decline in the FTSE 100 & MSCI World Index occurred as Europe’s stock markets declined due to the reality of concerns about the new advance of the Covid-19 virus which offset any optimism about the US stimulus plans.

U.S. stocks declined as investors observed bank earnings reported by Citigroup and Wells Fargo that were lower than expectations. This resulted in a drop in the S&P 500.

Oil prices weakened amid concerns about a resurgence of Covid-19 cases in China, the world’s largest crude importer, with the country reporting the highest number of daily cases in more than 10 months.

On the regional front, the FTSE ASEA Pan African Index, representing African stock exchanges increased as the Rand which had lost some ground against the dollar due to concerns surrounding an extension of the adjusted level 3 lockdown was offset by optimism over vaccine progress.

On the global commodities markets, Crude Oil WTI closed the week high with 0.23% and the ICE Brent Crude decreased by 1.59%. Gold futures prices decreased by 0.30% to settle at $1,829.90.

Week’s Highlights

• Kenya has bowed to International Monetary Fund (IMF) pressure to include Sh3.4 trillion parastatal and county loans as part of the country’s national debt. Currently, the Treasury only recognizes guaranteed debts, but the IMF wants it to include all loans of State linked firms, a move that will push the country’s Sh7 trillion debt up by Sh3.4 trillion crashing through the Sh9 trillion ceiling set by Parliament.

• Kenya’s current account deficit narrowed to 4.7% of GDP from 4.9% in twelve months to November 2020, attributable to savings from oil imports and resilient earnings from exports and remittances. This is a sign of recovery of the country’s inflows.

• Moody’s has maintained a negative based on the severe economic hurdles Sub Saharan countries are facing currently. Moody’s Investor Services predicts that African countries will experience wider fiscal deficits and higher debt levels in 2021 due to slow economic growth and weak revenue collection as a result of the pandemic.

• Banks will be the most attractive investments at the Nairobi Securities Exchange (NSE) in 2021 based on projections that lenders will cut down on their loan losses, sharply pushing their earnings this year. With share prices falling below 25% in most bank counters, equities offer an attractive entry point and can deliver strong double-digit returns in 2021, especially banking stocks.

• U.S. stocks declined as investors had already priced in the optimism over the new fiscal stimulus package announced and with the earnings season starting.

• India, has entered into recession for the first time in twenty-five years due to the Covid-19 pandemic. The GDP for the July-September quarter (Q3) fell by 7.5% compared to the same period in 2019 when the economy grew by more than 4%.

• Super Petrol prices increased by Kshs 0.17, Diesel by KShs 4.57 and Kerosene by Kshs 3.56 per liter on a monthly basis. This was following an increase in pump prices in the latest Energy & Petroleum Regulatory Authority (EPRA) review. EPRA attributes the price increase to the higher landing cost of imported fuel in December 2020.

• Oil prices weakened Friday amid concerns about a resurgence of Covid-19 cases in China, the world’s largest crude importer, with the country reporting the highest number of daily cases in more than 10 months on Friday.