Weekly Commentary – 21st August 2020

Foreign Exchange Reserves

The CBK’s usable foreign exchange reserves slightly declined but remains adequate at USD 9.18 bn (5.61 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 strengthened against the dollar and Euro over the week, trading against the USD at Kshs 108.01 down from Kshs 108.29, the Euro traded at Ksh 127.93 down from Ksh 128.18 against the Sterling Pound it traded at Ksh 144.88 up from Ksh 141.74 recorded last week. The shilling performance is attributable to slower dollar demand from oil and merchandise importers.

Liquidity

The markets remained liquid from the previous weeks on account of government payments which offset tax receipts, open markets operations remained active during the week. The weekly mean of the daily weighted average inter-bank rate, however, increased to 2.59416% from 1.9467% in the previous week. The volume transacted increased by 12.24% to stand at Kshs 13.8 bn. Commercial banks’ excess reserves stood at Kshs 14.20 bn in relation to the 4.25% cash reserves requirement.

Fixed Income

T-Bills

T-bills subscription rate declined to 40.35% from 92.76% in the preceding week. The decline in the subscription level is owed to the auction of the 11-year Infrastructure Treasury bond of August 19 which received bids of Kshs. 101.5 billion against Kshs 70 million advertised. The bond was sold at an average rate of 11.30%. The subscription rates for the 91-day, 182-day, 364-day papers decreased to 65.45%, 8.83% and 61.84% respectively from 159.33%, 93.78% and 65.11%. The yields on the 91-day and 182-day increased to 6.26% and 6.60% while yield 364-day paper decreased to 7.51%.

T-Bonds

The bonds market registered decreased activity during the week with the bonds turnover decreasing by 59.57% to Kshs 5.7 billion from Ksh 14.1bn recorded last week. In the international market, yields on Kenya’s Eurobonds increased by an average of 5.7 basis points. Similarly, the yields on the 10-year Eurobonds for Angola and Ghana increased.

Equities

The Equity Market closed the week with 35.87m traded shares valued at Kshs 707.7m against 16.51m shares valued at Ksh 352.39m transacted in the previous week. The market capitalization improved by 1.77% to Kshs 2.02 billion.

NASI and NSE 25 increased by 1.77% and 2.50% respectively, while NSE 20 decreased by 1.13%. NASI performance was driven by gains in large-cap stocks such as Equity Group, KCB, and ABSA which increased by 14.61%, 10.1%, and 7.9% respectively.

The Banking sector had shares worth Kshs 996m transacted an increase from Ksh 633m and accounted for 50.81% of the week’s traded value, Manufacturing & Allied sector traded shares were worth Ksh 80 million and represented 4.08%. Safaricom rose from Ksh 27.70 to Ksh 28.20 from the previous week. It had shares worth Ksh 713 million transacted which represented 36.36% of the week’s traded value.

Alternative Investments

The derivatives market closed the week with 10 derivatives contracts with a turnover of Ksh 247,000.

The I-REIT market registered decreased activity with 6 unit deals from 15 and a turnover of Kshs 28,708 which was a decline from Ksh 617,952 at the close of last week.

There were no activity in the ETF market.

Global and Regional Markets

Global stock markets improved from the previous week. The MSCI World Index increased by 0.33%, while the MSCI Emerging Market decreased by 0.12%. In the USA, DJI remained almost constant while the S&P 500 increased by 0.72%. In Europe, STOXX Europe 600 declined by 0.82% and the FTSE 100 decreased by 1.28%. China’s SSEC increased by 0.61%. S&P 500 rose to record highs during the week pushed by just a handful of stocks despite many stocks continued decline.

On the regional front, the FTSE ASEA Pan African index decreased by 0.40%. The JSE All Share declined by 1.98% and Nigeria’s NGSSE increased by 0.09%. Within the EAC, Tanzania’s DSEI increased by 1.46% and Uganda’s ALSIUG declined by 7.39%.

On the global commodities market, Crude Oil WTI closed the week high by 0.17% while the ICE Brent Crude decreased by 0.04%. Gold futures prices decreased by 0.31% to settle at $1,947.60 at the end of the week after the Fed on Wednesday said they will not set a control on the yield curve of bonds, which caused a rally on yields of 10 year U.S. Treasury and the dollar spelling doom for gold.

Week’s Highlights

• Nairobi Securities Exchange issued a release on review of the constituent counters of its two benchmarks indices, the NSE 20 and NSE 25 Share Index incorporating the inclusion of Stanbic Holdings Plc and Jubilee Holdings Plc in the NSE 20 and NSE 25 Share Index respectively. The two counters replaced Kenya Airways Plc in the indices.

• Equity Group released its H1’2020 earnings. Its core earnings per share declined by 24.4% to Kshs 2.4 from Kshs 3.2 in H1’2019. The decline was a result of an increase in total operating expenses by 31.1% exceeding the 3.8% growth in total operating income. The group had a Loan Loss Provisions LLPs of Kshs 8.0bn which was an exceeding increase from Kshs 0.9bn in H1’2019. Profits before tax declined by 29.5% to Kshs 12.0bn from Kshs 17.0bn in H1’2019.

• The Kenya Mortgage Refinance Company (KMRC) plans to issue a green bond before the end of next year to increase cash for retail lending. The bond will be issued as a green bond to ensure climate-friendly buildings are given a priority in the financing and placed privately with institutional investors, fund managers, and pension funds.

• Kenya Revenue Authority, recorded slow growth in revenue collections such as Pay as you Earn (PAYE) tax, attributed to a decline in employment rate, a 6.4% decline in Domestic Excise tax due to Covid-19 impacts that led to a decrease in productions of excisable products like cigarettes, spirits, and beer, in addition, VAT recorded a 7% drop due to a decline in business turnovers.

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