Weekly Commentary – 18th September 2020

Foreign Exchange Reserves

The CBK’s usable foreign exchange reserves remained adequate at USD 8,838 million (5.36 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 strengthened against the Dollar but depreciated against the Euro to trade at Kshs 108.39 and Kshs 128.15 from Kshs 108.40 and Kshs 127.85 respectively. The Shilling strengthened against the Sterling Pound to trade at Kshs 139.76 an increase of 41 basis points. The increase in the dollar is attributable to subdued dollar demand from importers.

Liquidity

Money markets remained relatively liquid supported by Treasury’s efforts to raise new debt. The inter-bank rate increased to 2.70% from 2.63% recorded in the previous week. The inter-bank volume increased to Kshs 12.78 billion from Kshs 12.60 billion. Commercial banks’ excess reserves stood at Kshs 9.60 billion which is a decrease from Kshs 34.70 billion. Remittance inflows increased in relation to the 4.25 percent cash reserves requirement (CRR). Open market operations remained active.

Fixed Income

T-Bills

The T-Bills subscription rate decreased to 70.35% down from 84.09% the preceding week and remained under-subscribed. The under-subscription in T-Bills is attributable to high demand for bond offers for the month. The 91-day paper was oversubscribed at 151.25% down from 180.70%, the subscription rate for the 182-day and 364-day papers stood at 19.19% and 89.15% respectively. The yields on the 91-day, 182-day and 364-day papers increased marginally to 6.27%, 6.72% and 7.57% from 6.27%, 6.69% and 7.56% respectively.

T-Bonds

The bonds market had high demand for the months bond offers. Bonds turnover decreased with bonds turnover closing in at Kshs 1.59 billion from Kshs 3.32 billion registered in the previous session. Overall subscription rate for all three bonds offered was 163.35%. The three re-opened auctions were, FXD2/2010/15, FXD1/2020/15 and FXD1/2011/20 with fixed coupons of 9.0%, 12.8% & 10.0% and effective tenors of 5.3 years, 14.5 years and 10.7 years, respectively. The government rejected high bids only accepting Kshs 64.2 bn out of the Kshs 81.7 bn worth of bids received, translating to an acceptance rate of 78.6%.

Equities

The Equity Market closed the week with 20 million shares traded valued at Kshs 452 million against Kshs 15 million traded in the previous week. Market capitalization decreased slightly by 0.45% to Kshs 2.15 billion.

NASI, NSE 20 and NSE 25 decreased by 0.45%, 0.55% and 0.67% respectively. The performance of the NASI was driven by declines recorded by large-cap stocks with the top losses being recorded in Diamond Trust Bank (DTB-K), Equity Group, and NCBA Group, which declined by 3.8%, 2.3% and 1.6% respectively.

The Banking sector had shares worth Kshs 54.9m transacted which accounted for 10.67% of the week’s traded value, Manufacturing & Allied sector represented 5.08% and Safaricom with shares worth Kshs 4.2Bn transacted contributed 82.03%.

Alternative Investments

The derivatives market over the week recorded 127 contracts having a turnover of Kshs 3.6million.

I-REIT market over the week recorded a turnover of Kshs 10.82million with 215 deals which was an increase from Kshs 1.87million recorded over the close of last week.

The ETF market registered no activity.

Global and Regional Markets

Global stocks markets had a mixed performance. The decline in the FTSE 100 & MSCI World Index occurred as the U.K. is reportedly considering another national lock down to stop an increase in the Covid-19 cases.

US stocks slumped for the third straight week after the Federal Reserve pledged to keep interest rates low for a long time but gave no new hints about any further stimulus measures. This and the decline in tech heavy stocks such as Facebook and Amazon negatively impacted the DJI and S&P 500 indices. China’s stocks rose as investors hopes of a rebound in business activity from the Covid-19 lockdown increased.

On the regional front, the FTSE ASEA Pan African Index, representing African stock exchanges, declined due to rising virus cases which caused risk aversion by investors.

On the global commodities markets, Crude Oil WTI closed the week high with 10.13% and the ICE Brent Crude increased by 8.34%. Gold futures prices increased by 0.73% to settle at $1,962.10.

Week’s Highlights

• A new guidance for Collective Investment Schemes restricts money market funds to only put money in instruments with a term of 13 months. Equity funds of fixed income funds will invest 80% of their portfolios in respective classes. Mixed funds with money market, fixed income & equities portfolios will not be allowed to put more than 60% in one class.

• East Africa becomes the largest buyer of goods from UAE in June with goods worth 14.999 Billion, representing 57.6% of all exports to sub-Saharan Africa. Africa experienced 20% increase in imported goods from UAE.

• Global stocks are receiving a boost from news that Phase 3 trials of Corona Virus vaccine have resumed in the UK, after a halt due to safety fears.

• SASRA now wants small Saccos to merge, as top entities control more than half of total deposits. Large saccos are deepening the control of deposits which are a source of lending, while small ones struggle to mobilize deposits. The merger will help bring stability and lower the costs of operation.

• Corona virus related bad debts have set South African banks’ profit back by around a decade or more, and they are unlikely to recover for at least three years.

• World oil demand is expected to fall even more in the next quarter of the year by 9.46 million barrels per day, leading to a decline in oil prices. There is a projection by OPEC that the consumption will rise by 6.62 million barrels per day.

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