Weekly Commentary – 18th December 2020

Foreign Exchange Reserves

The CBK’s usable foreign exchange reserves remained adequate at USD 7837 million (4.81 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 remained stable against the Dollar at Kshs 111.57 from Kshs 111.48. The shilling weakened against all other major currencies. Against the Euro and Sterling Pound, the shilling was trading at Kshs 136.30 and Kshs 150.75 from Kshs 134.9 and Kshs 148.24 respectively. The shilling however strengthened against the regional currencies but depreciating against the rand by 157 basis point to trade at Kshs. 7.50 from Kshs. 7.39. The performance of the shilling against the dollar and other currencies is attributable to a slowdown of foreign dollar currency inflows and continued economic uncertainty globally.

Liquidity

Money markets remained relatively liquid supported by government payments which offset tax receipts. The inter-bank rate increased to 5.75% from 5.61% recorded in the previous week. The inter-bank volume increased to Kshs 9.59 billion from Kshs 7.97 billion. Commercial banks’ excess reserves stood at Kshs 26.2 billion in relation to the 4.25% cash reserves requirement (CRR) which is an increase from Kshs 24.6 billion in the previous week. Open market operations remained active.

Fixed Income

T-Bills

The T-Bills subscription rate increased to 90.39% up from 41.05% the preceding week. The under-subscription in T-Bills is attributable to tightening of liquidity in the market which caused an increase in the paper yields. The 91-day paper was oversubscribed at 215.17% up from 38.77%, the subscription rate for the 182-day and 364-day papers stood at 78.57% and 52.07% respectively. The yields on the 91-day, 182-day and 364-day papers papers increased marginally to 6.92%, 7.40% and 8.28% from 6.90%, 7.36% and 8.25% respectively.

T-Bonds

Bonds turnover during the week increased to close at Kshs 5.00 billion from Kshs 2.67 billion registered in the previous session. However, the number of deals decreased to 78 from 102 recorded in the previous session. In the international market, yields on Kenya’s Eurobonds declined by an average of 10.8 basis points. The yields on the 10-year Eurobonds for Ghana and Angola also declined.

Equities

The Equity Market closed the week with 12.85 million shares traded with equity turnover of Kshs 311 million against Kshs 23.2 million shares traded with equity turnover of Kshs 424 million in the previous week. Market capitalization increased by 0.64% to Kshs 2.26 billion.

NASI, NSE 20 and NSE 25 increased by 1.42%, 0.83% and 0.56% respectively. NASI performance was driven by gains recorded by large cap stocks such as Safaricom, NCBA Group, Jubilee Holdings, Kenya Reinsurance and Stanbic Holdings of 1.7%, 0.9%, 5.6%, 6.6% and 9.0% respectively.

The Banking sector had shares worth Kshs 911M transacted which accounted for 44.24% of the week’s traded value. Safaricom shares gained during the week to Kshs. 33.55 from Kshs. 32.95. 42 million shares were traded worth Kshs 846 million, representing 41.06% of the week’s traded value.

Alternative Investments

The derivatives market in Friday’s session recorded 168 contracts having a turnover of Kshs 3.5 million from 21 contracts having a turnover of Kshs 412,150 at the beginning of the week.

I-REIT market over the week recorded a turnover of Kshs 41,868 with 7 deals which was a decrease from Kshs 415,482 recorded over the close of last week.

Global and Regional Markets

The S&P 500 Index gained 1.25% over the week supported by the continued roll-out of Covid-19 vaccine, progress in US fiscal stimulus negotiations and renewed hope of Brexit trade deal. This overshadowed negative news on increased number of Corona Virus cases reported. The fiscal supports would renew subsidies for businesses suffering from the pandemic, distribute vaccines, fund schools, and restart jobless benefits that are about to expire.

The FTSE 100 Index declined by -0.27% despite U.K. stocks having a rally over the week. This is attributable to strengthening of the Pound which has hurt exports.

On the regional front,the JSE All Shares Index was up 1.26% amid optimism around Covid-19 vaccines and prospects of further economic stimulus in the US.

The global commodities markets, Crude Oil WTI future closed the week high by 5.35% at USD 49.06 and the ICE Brent Crude futures price increased by 4.70% to USD 52.32. Gold futures prices increased by 2.35% to settle at $1,887.0.

Week’s Highlights

• Money circulating outside the banking system grew by 14.95% to 223 billion in October from 194 billion at the onset of lock-downs in April due to increased business activities and rising number of workers on payroll after easing of Covid-19 restrictions.

• Central Bank has scrapped off free M-Pesa transfers for transactions below 1000 shillings. The regulator has however rejected banks’ push to reintroduce transaction fees between accounts and mobile phone wallets.

• Centum Real Estate raised 3billion out of a target of 4 billion in the recently issued housing bond whose maturity is December 2023 at a rate of 12-14%. Interested investors were individuals, banks, pension funds as well as asset management firms.

• Kenya Mortgage Refinance Corporation has offered KCB group and HFC 2.64 Billion to offer home loans with interest rates of less than 10%, which is lower than the average market lending rate of 11.92%.

• EPRA has set up new fuel prices for 15th December to 14th January- a move that will see petrol, diesel and kerosene retail at 106.82, 91.82 and 83.56 respectively. This is due to rise in average landed cost of imported fuel.

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