Weekly Commentary – 18th June 2021

Foreign Exchange Reserves

The CBK’s usable foreign exchange reserves remained adequate at USD 7,474 million (4.57 months of import cover). This meets CBK’s statutory requirement to endeavour 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 the Dollar, the Euro and the Sterling Pound. The appreciation of the shilling is attributable to subdued dollar demand from importers.

	Week Before	Week After
Dollar	107.90	107.80
Euro	131.35	129.66
Sterling Pound	152.25	151.26

Liquidity

Liquidity in the money markets improved, supported by Government payments which partly offset tax remittances and redemptions worth Kshs 64.8 billion. Diaspora remittances increased by 26.18% to USD 325.80 million in May 2021 compared to USD 258.20 million in May 2020. Open market operations remained active.

	Week Before	Week After
Interbank rate	4.31%	4.39%
Interbank volume (billion)	11.84	5.02
Commercial banks’ excess reserves (billion)	14.10	15.30

Fixed Income

T-Bills

The Treasury Bills remained over-subscribed. The over-subscription in T-Bills is attributable to improved liquidity in the money markets.

T-Bill	Yield (% Rate)		Subscription Rate
	Week Before	Week After	Week Before	Week After
Overall			181.76%	152.87%
91 day	7.10%	7.00%	209.70%	205.04%
182 day	7.73%	7.54%	109.33%	112.52%
364 day	8.65%	8.11%	243.01%	172.34%

T-Bonds

The bonds market had a high demand for the week’s bond offers. Bonds turnover increased to Kshs 20.53 billion from Kshs 15.88 billion the previous week.

The Treasury reopened two bonds FXD1/2019/20 and FXD2/2012/20 with coupon rates of 12.87% and 12.00%, and effective tenors of 17.9 years and 11.4 years respectively. The bids received amounted to Kshs 64.93 billion against an advertised amount Kshs 30.0 billion, a performance rate of 216.42%. The Treasury rejected high bids and only accepted Kshs 19.70 billion- an acceptance rate of 30.34%.

In the international market, yields on Kenya’s Eurobonds increased by an average of 22.6 basis points. The yields for Angola’s 10-year Eurobond and that of Ghana also increased marginally.

Equities

NASI and NSE 25 increased by 0.03% and 0.06% respectively, while NSE 20 declined by 0.56%. Market capitalization also increased marginally by 0.03% to 2.68 trillion. The performance was driven by losses recorded by large-cap stocks. Top losses were recorded in BAT Kenya, NCBA Group and EABL which declined by 3.1%, 2.7% and 0.5% respectively.

The Banking sector had shares worth Kshs 678M transacted which accounted for 28.68% of the week’s traded value. Manufacturing & Allied sector represented 15.93% and Safaricom with shares worth Kshs 1.1B transacted, represented 15.93%.

Top Losers	W-o-W
Unga Group Limited	-10.00%
B.O.C Kenya Plc	-9.56%
Flame Tree Group	-7.91%
Williamson Tea Kenya Plc	-7.20%
Home Afrika Ltd	-6.82%

Alternative Investments

	Week Before	Week After	% Change
Derivatives Turnover (million)	3.23	10.50	225.21%
Derivatives Contracts	126	300	138.10%
I-REIT Turnover (million)	0.14	0.55	289.73%
I-REIT Total Deals	41	34	-17.07%

Global and Regional Markets

Global Markets	W-o-W
S&P 500	-1.91%
Dow Jones Industrial Average (DJI)	-3.45%
FTSE 100 (FTSE)	-1.63%
STOXX Europe 600	-1.19%
Shanghai Composite (SSEC)	-1.80%
MSCI Emerging Markets Index	-1.50%
MSCI World Index	-1.94%

Continental Markets	W-o-W
FTSE ASEA Pan African Index	-0.48%
JSE All Share	-3.16%
NSE All Share (NGSE)	-1.32%
DSEI (Tanzania)	-1.53%
ALSIUG (Uganda)	0.99%

European stocks traded lower as investors backed away from the reflation trade, selling banks and energy stocks. The rising COVID-19 cases from the Delta variant were also a worry.

Major indices in the US stock market ended lower due to losses in stocks of Oil & Gas, Utilities and Financial sectors. This was also aggravated by hawkish comments from the Federal Reserve, as fears of the US policy tightening came to the fore.

Asia Pacific stocks closed the week low, as investors continued to digest the latest US Federal Reserve policy decision that showed industrial production grew worse than expected 8.8% year-on-year, while the unemployment rate was at 5.2%.

On the global commodities markets, Crude Oil WTI closed the week high by 1.03% and the ICE Brent Crude also increased by 1.13%. Gold futures prices declined by 5.88% to settle at $1,769.00.

Week’s Highlights

• The Energy and Petroleum Regulatory Authority(EPRA) has revised upwards the prices of super petrol by Kshs 0.77 per litre, while the prices of diesel and kerosene remain unchanged for the period between 15th June and 14th July 2021. This is despite an increase in the price of imported Murban crude oil. In May, the average landing costs of super petrol increased by 1.52% to $449.37 while diesel increased by 5.98% to $ 461.95 per cubic metre. Kerosene also increased by 4.41% to $ 449.37 per cubic metre.

• Kenya raised USD 1 billion by issuing a 12-year Eurobond at 6.3% on June 17, 2021. The Eurobond, listed at the London Stock Exchange, received offers of USD 5.4 billion and a final pricing outcome that was better than the initial market expectations, signalling strong investor confidence. The Eurobond will be repaid in two equal tranches in January 2033 and January 2034. This is the fourth sovereign bond to be floated by the country since 2004.

• The Central Bank of Kenya (CBK) has embarked on reforms aimed at cutting the dominance of large commercial banks in government securities, lower the cost of borrowing and boost cash flow for investors who exit. This is part of the conditions in a deal between Kenya and the World Bank Group for disbursement of Kshs 81 billion under the Development Policy Operations (DPO) expected by end of the month.

• Kenya has appointed Citi and JP Morgan as underwriters for a dollar-denominated sovereign bond issue, and I&M Bank and NCBA Group as co-managers. The Ministry first announced plans for the $1 billion Eurobond in March 2021 and a separate 1-billion-euro bond, which will have a 12 to 15-year tenor.

• The World Bank is likely to remove Kenya from the list of countries with a high risk of loan defaults in 2028 if the authorities comply with a program aimed at capping growth in government expenditure. The world Bank projects that there will be a recovery in economic growth and exports, and the debt burden will peak in the 2022/2023 financial year then drop consistently. This is despite the country’s debt profile dropping from moderate to high risk in the wake of the pandemic.