Weekly Commentary – 15th March 2021

Foreign Exchange Reserves

The CBK’s usable foreign exchange reserves remained adequate at USD 7,351 million (4.52 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 appreciated against all major currencies. It remained relatively stable against the Dollar to trade at Kshs 109.65. It appreciated against the Euro and the Pound to trade at Kshs 130.92 and Kshs 152.63 from Kshs 132.04 and Kshs 153.00 the previous week respectively. The strengthening of the Kenyan shilling is attributable to markets anticipating positive economic recovery following the arrival of AstraZeneca Covid-19 vaccine in the country.

Liquidity

Liquidity in money markets tightened, supported by government payments which were partly offset by tax remittances. The inter-bank rate increased to 4.97% from 4.87% recorded in the previous week. The inter-bank volume increased to Kshs 12.67 billion from Kshs 11.52 billion. Commercial banks’ excess reserves stood at Kshs 11.7 billion which is a decrease from Kshs 13.5 billion. Open market operations remained active.

Fixed Income

T-Bills

The T-Bills subscription rate decreased to 94.27% from 140.98% the preceding week and became under-subscribed. The under-subscription in T-Bills is attributable to a concurrent bond issue as well as tight liquidity in the money market. The 91-day paper was over-subscribed at 108.75% down from 176.13%, the subscription rate for the 182-day and 364-day papers stood at 60.82% and 121.92% from 77.74% and 190.16% respectively. The yields on the 91-day paper remained unchanged at 7.02%. The yields on 182-day and 364-day papers increased marginally to 7.83% and 9.14% from 7.77% and 9.07% respectively.

T-Bonds

The bonds market had a high demand for the weeks bond offers. Bonds turnover decreased, with bonds turnover closing in at Kshs 14.13 from Kshs 18.37 billion registered in the previous session. The overall subscription rate for the bonds offered 97.41%. The reopened auctions were FXD1/2019/10 and FXD2/2018/20 with fixed coupon rates of 12.4% and 13.2%, and effective tenors of 8.0 years and 17.4 years respectively. The government rejected high bids only accepting Kshs 48.31 billion out of the Kshs 48.71 billion worth of bids received, translating to an acceptance rate of 99.18%.

Equities

The Equity Market closed the week with 13.4 million shares traded with a turnover of Kshs 334.6 million against 8.64 million shares traded with a turnover of Kshs 219.9 million in the previous week. Market capitalization increased slightly by 0.26% to Kshs 2.49 billion.

NASI and NSE 25 increased by 0.25% and 0.86% respectively. NSE 20 decreased by 0.95%. The performance was driven by gains recorded by large-cap stocks. Top gains were recorded by Equity Group, Diamond Trust Bank and KCB Group which increased by 5.1%, 4.9% and 4.6% respectively.

The Banking sector had shares worth Kshs 891 million transacted which accounted for 27.45% of the week’s traded value, Manufacturing & Allied sectors represented 16.87% and Safaricom with shares worth Kshs 1.6 billion transacted, contributed 50.26%.

Top Losers	W-o-W
Nation Media Group	-22.88%
Car & General	-14.81%
Kapchorua Tea	-7.94%
Unga Limited	-6.45%
Eveready East Africa	-4.55%

Alternative Investments

The derivatives market over the week recorded 95 contracts having a turnover of Kshs 3.2 million from 67 contracts having a turnover of Kshs 2.7 million in the previous week.

I-REIT market over the week recorded a turnover of Kshs 0.70 million with 39 deals which is an increase from Kshs 0.49 million with 35 deals which was recorded over the close of last week.

The ETF market registered no activity during the week.

Global and Regional Markets

Global Markets	W-o-W
S&P 500	2.64%
Dow Jones Industrial Average (DJI)	4.07%
FTSE 100 (FTSE)	1.97%
STOXX Europe 600	3.52%
Shanghai Composite (SSEC)	-1.40%
MSCI Emerging Markets Index	0.66%
MSCI World Index	2.88%

Continental Markets	W-o-W
FTSE ASEA Pan African Index	-0.52%
JSE All Share	-0.32%
NSE All Share (NGSE)	-1.74%
DSEI (Tanzania)	1.38%
ALSIUG (Uganda)	2.57%

European stocks traded higher to trade at their highest level in over 13 years ahead of the ECB meeting where policymakers will be keen to calm markets by signaling faster money printing to keep a lid on borrowing costs and recommit to rock-bottom rates until well into a recovery.

US indices increased during the week. Dow Jones increased by 4.07% as investors cheered the $1.9 trillion stimulus package that President Joe Biden signed into law. This will see households receive $1,400 direct payments, and investors speculate that this could find its way to stock markets.

On the regional front, NGSE declined by 1.74% following the final approvals of demutualization of Securities and Exchange Commission and Corporate Affairs Commission to operate as one entity, Nigerian Exchange Group Plc.

On the global commodities, the Crude Oil WTI declined by 0.73% over the week and ICE Brent Crude decreased by 0.20%. Gold Futures increased by 1.25% to settle at $1,719.80.

Week’s Highlights

• EPRA has reviewed the prices of petrol, diesel, and kerosene upwards, citing the increase in imported costs for fuel. Super petrol increased by Kshs 7.63 to retail at Kshs 122.81 while diesel and kerosene will increase by Kshs 5.75 and Kshs 5.41 respectively. The overall increase in fuel prices corresponds to global shifts in oil prices.

• Standard & Poor (S&P) has downgraded Kenya’s credit rating to ‘B’, due to rising fiscal and external pressures, as it maintains that Covid-19 will be contained in the second half of 2021 through a combination of intense vaccination campaigns, treatment and testing, starting with more developed economies.

• Global air cargo demand returned to pre-Covid levels in January, showing recovery for the first time since the outbreak of the pandemic. This comes as a relief to airlines that have been struggling for the last one year. All regions saw month-on-month improvement in air cargo demand with North America and Africa being the strongest performers- attributed to robust expansion on the Asia-Africa trade lanes. However, international passenger demand still remains subdued.

• Private equity (PE) investments are expected to dominate corporate deals in East Africa this year as businesses seek new capital to aid post-Covid recovery, outperforming mergers and acquisitions. Businesses have resorted to PE funding due to difficulties in getting credit from risk-averse banks, as well as avoiding the extra scrutiny that comes from raising money through the capital markets.

• The Local Authority Pension Trust (Laptrust) and the Local Authority Pension Fund (Lapfund) are in talks over the merging of the two entities in order to pave the way for the implementation of the County Governments Retirement Scheme Act, 2019. The two schemes, RBA and the Kenya County Government Workers Union (KCGWU) have expressed willingness to engage in discussions to end the standoff.

• The African Development Bank has been ranked as the world’s best multilateral financial institution for 2021 by the world-renowned American Magazine, Global Finance. The selection criteria include; entries from banks, number and size of deals, market share, distribution network, innovation, efforts to meet market needs, and structuring capabilities. Renaissance Capital was also named the best investment bank in Kenya and Standard Bank as Africa’s top investment bank in 2021.