Weekly Commentary – 16th July 2021

Foreign Exchange Reserves

The CBK’s usable foreign exchange reserves remained adequate at USD 9,621 million (5.87 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.

	Week Before	Week After
Dollar	107.95	108.19
Euro	127.83	127.90
Sterling Pound	148.77	149.84

Liquidity

Liquidity in the money markets improved, supported by government payments which partly offset tax remittances. Remittance inflows increased by 6.03% to USD 305.9 million in June compared to USD 288.5 million in June last year. Open market operations remained active.

	Week Before	Week After
Interbank rate	4.74%	4.08%
Interbank volume (billion)	9.33	4.52
Commercial banks’ excess reserves (billion)	13.90	1.70

Fixed Income

T-Bills

The Treasury Bills became under-subscribed. The undersubscription in T-Bills is attributable to the concurrent primary bonds issue.

T-Bill	Yield (% Rate)		Subscription Rate
	Week Before	Week After	Week Before	Week After
Overall			146.01%	80.28%
91 day	6.61%	6.52%	282.70%	66.83%
182 day	7.10%	6.98%	194.11%	113.25%
364 day	7.58%	7.51%	43.24%	52.70%

T-Bonds

The bonds market had high demand for the week’s bond offers. Bonds turnover increased to Kshs 24.42 billion from Kshs 21.14 billion previous week.

The Treasury has reopened three previously issued bonds: FXD1/2012/15, FXD1/2018/15 and FXD1/2021/25 with coupon rates of 11.00%, 12.65% and 13.92%, and effective tenors of 6.2 years, 11.9 years and 24.9 years respectively. The Treasury received bids worth Kshs 116.92 billion, against a target of Kshs 60 billion – a performance rate of 194.87%. The Treasury rejected high bids and accepted bids worth Kshs 79.94, translating to an acceptance rate of 68.36%.

In the international market, yields on Kenya’s 10 year Eurobond declined by an average of 10.5 basis points. The yields for Angola’s 10-year Eurobond and that of Ghana also declined marginally.

Equities

NASI, NSE 20 and NSE 25 increased by 1.96% 1.07% and 0.96% respectively. Market capitalization also increased by 2.02% to 2.78 trillion. The performance was driven by gains recorded by large-cap stocks. Top gains were recorded in Diamond Trust Bank Kenya, Bamburi Cement and Safaricom Plc which increased by 12.3%, 4.7% and 3.3% respectively.

The Banking sector had shares worth Kshs 781M transacted which accounted for 42.70% of the week’s traded value, Manufacturing & Allied sector represented 4.82% and Safaricom with shares worth Kshs 855M transacted, represented 46.73%.

Top Losers	W-o-W
Transcentury Limited	-10.00%
Crown Paints	-10.00%
CIC Insurance	-9.28%
Unga Holdings	-8.75%
Home Afrika	-6.82%

Alternative Investments

	Week Before	Week After	% Change
Derivatives Turnover (million)	4.69	4.14	-11.90%
Derivatives Contracts	148	121	-18.24%
I-REIT Turnover (million)	0.79	0.44	-45.11%
I-REIT Total Deals	70	50	-28.57%
Exchange Traded Funds	0	0

Global and Regional Markets

Global Markets	W-o-W
S&P 500	0.40%
Dow Jones Industrial Average (DJI)	0.24%
FTSE 100 (FTSE)	-0.02%
STOXX Europe 600	0.19%
Shanghai Composite (SSEC)	-0.29%
MSCI Emerging Markets Index	-2.75%
MSCI World Index	0.23%

Continental Markets	W-o-W
FTSE ASEA Pan African Index	0.91%
JSE All Share	0.36%
NSE All Share (NGSE)	-0.12%
DSEI (Tanzania)	-0.11%
ALSIUG (Uganda)	-0.56%

European stocks traded mixed as investors digested the information on corporate earnings and the latest Eurozone inflation data. The quarterly earnings season is kicking into full gear in Europe, and investors are expecting improvements as the continent reopens from the restrictions imposed to combat the pandemic.

US stocks closed the week higher due to unexpected rebound in retail sales which pointed out a stronger consumer and yielded better-than-expected earnings. The US Federal Reserve Chair gave his view that uncomfortably high inflation would be temporary although the US economic recovery is far from over, with the Federal Reserve closely watching inflation before it begins asset tapering.

Asia-Pacific Stocks closed the week low as ongoing concerns about the economic recovery from Covid-19 ended the week on a sour note. The ongoing Covid-19 outbreaks involving the Delta variant, indications of a peaking economic recovery and slowing corporate earnings momentum all remain as risks.

On the global commodities markets, Crude Oil WTI closed the week low by 3.69% and the ICE Brent Crude also declined by 2.59%. Gold futures prices increased by 0.24% to settle at $1,815.00.

Week’s Highlights

• The Energy and Petroleum Regulatory Authority (EPRA) has retained the prices of super petrol, diesel and kerosene for the period between 15th July and 14th August, despite an increase in landed cost of imported crude. However, the cost of electricity is set to rise significantly following an increase in the forex component on the power bill as reviewed by the regulatory. The high electricity costs will negatively impact most Kenyan households and businesses that are grappling in the wake of the pandemic.

• Kenya’s current account deficit widened to 5.5% of gross domestic product (GDP) in the 12 months leading to May as compared to 5.2% of GDP in the corresponding period last year. The higher deficit can be attributed to a rise in import expenditure given the exports receipts grew at a slower pace.

• Real Estate Investment Trusts (REITs) at the NSE has gained traction since their inception in 2015. ILAM Fahari I-Reit, which has 5,500 retail investors and a few institutional investors, is looking to attract more retail investors by engaging market regulators to educate the public on the benefits of REITs such as lower capital requirements, exemption from income tax and regular income stream.

• Rent for office space is expected to decline to USD 8.7 per square metre as retail rates fall to USD 14.6 per square metre, according to a report by Deloitte on the Economic Impact of the pandemic on East African economies. Slow demand, low occupancy levels and high supply levels saw rental yields decrease to 7.3% in Q4 2020 from 7.8% in Q1 2020. This was attributed to working from home schedules and reduced operations in the wake of the pandemic.

• Linkham Group, a global insurance services firm, has confirmed a successful acquisition of a majority stake in Resolution Insurance Kenya. Linkham group will invest significant resources to revamp and fuel growth of Resolution insurance by focusing on quality customer service delivery, adopting innovative technologies and risk management.

• Foreign investors reduced their net outflows at the Nairobi Securities Exchange (NSE) in the first half of this year compared to the corresponding period last year as the market recovers. Currently, higher share prices especially on the large blue chips that dominate the market has aided in recovery of the bourse to pre-pandemic levels. NSE has cumulatively added Kshs 449.2 billion in the first half of the year compared to a Kshs 435.7 billion loss in the second half of last year.

• Kenya Mortgage Refinance Company (KMRC) is planning to issue a housing bond by the end of this year. The scheme aims to offer cheaper finance to potential home-buyers. KMRC seeks to raise $350 million to provide affordable mortgages to nearly 10,000 households at the price of USD 50,000 or less per housing unit.