Weekly Commentary – 23rd July 2021

Foreign Exchange Reserves

The CBK’s usable foreign exchange reserves remained adequate at USD 9,371 million (5.73 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, but appreciated against the Euro and the Sterling Pound. This is attributable to increased dollar demand from importers.

	Week Before	Week After
Dollar	108.19	108.20
Euro	127.90	127.65
Sterling Pound	149.84	148.77

Liquidity

Liquidity in the money markets improved, supported by government payments and Term Auction Deposits (TADs) maturities which partly offset tax remittances. Open market operations remained active.

	Week Before	Week After
Interbank rate	4.08%	3.28%
Interbank volume (billion)	4.52	3.43
Commercial banks’ excess reserves (billion)	1.70	22.40

Fixed Income

T-Bills

The Treasury Bills remained under-subscribed. The undersubscription in T-Bills is attributable to investors’ anticipation of a Tap sale in the primary bond market in the coming week.

T-Bill	Yield (% Rate)		Subscription Rate
	Week Before	Week After	Week Before	Week After
Overall			80.28%	69.58%
91 day	6.52%	6.48%	66.83%	252.06%
182 day	6.98%	6.96%	113.25%	32.11%
364 day	7.51%	7.43%	52.70%	34.04%

T-Bonds

The bonds market had low demand for the week’s bond offers. Bonds turnover decreased to Kshs 17.69 billion from Kshs 24.42 billion previous week.

In the primary market, Acorn issued a final tranche of the green bond, which raised KShs 2.1 billion against the target of KSh 1.4 billion, representing a performance of 146%.

In the international market, yields on Kenya’s 10 year Eurobond increased by an average of 1.4 basis points. The yields for Angola’s 10-year Eurobond and that of Ghana also increased marginally.

Equities

NASI and NSE 20 increased by 0.18% and 0.49% respectively while NSE 25 decreased by 0.17%. Market capitalization also increased by 0.19% to 2.79 trillion. The performance was driven by gains recorded by large-cap stocks. Top gains were recorded in BAT Kenya and Bamburi Cement which increased by 4.3% and 2.1% respectively.

The Banking sector had shares worth Kshs 651M transacted which accounted for 35.46% of the week’s traded value, Manufacturing & Allied sector represented 2.28% and Safaricom with shares worth Kshs 1B transacted, represented 58.60%.

Top Losers	W-o-W
Nairobi Business Ventures	-17.26%
Williamson Tea Kenya	-9.03%
Express Kenya	-8.41%
Kapchorua Tea	-8.16%
Standard Group Limited	-6.91%

Alternative Investments

	Week Before	Week After	% Change
Derivatives Turnover (million)	4.14	2.98	-27.95%
Derivatives Contracts	121	87	-28.10%
I-REIT Turnover (million)	0.44	0.47	7.97%
I-REIT Total Deals	50	56	12.00%
Exchange Traded Funds	0	0

Global and Regional Markets

Global Markets	W-o-W
S&P 500	1.96%
Dow Jones Industrial Average (DJI)	1.08%
FTSE 100 (FTSE)	0.28%
STOXX Europe 600	1.49%
Shanghai Composite (SSEC)	0.31%
MSCI Emerging Markets	-2.15%
MSCI World Index	1.58%

Continental Markets	W-o-W
FTSE ASEA Pan African Index	-0.02%
JSE All Share	2.47%
NSE All Share (NGSE)	1.90%
DSEI (Tanzania)	6.56%
ALSIUG (Uganda)	-1.33%

European stocks traded higher, supported by the outcome of the European Central Bank monetary policy meeting which maintained its benchmark interest rate at 0% as well as its 1.85 trillion Euro asset-purchase scheme, while also tying its new forward guidance on interest rates more closely to inflation, suggesting they aren’t likely to rise anytime soon. This was also boosted by more positive quarterly corporate earnings.

US stocks closed the week higher, due to upbeat earnings and signs of economic revival which fueled investor risk appetite. Market participants now look forward to next week with the Federal Reserve’s two-day monetary policy meeting and a series of high-profile earnings.

Asia-Pacific Stocks closed the week high but ended the week on a cautious note as investors digested the latest U.S. economic data and corporate earnings.

On the global commodities markets, Crude Oil WTI closed the week high by 0.36% and the ICE Brent Crude also declined by 0.69%. Gold futures prices declined by 0.73% to settle at $1,801.80.

Week’s Highlights

• Kenya’s public debt increased by Ksh432 billion in the first half of the year. The debt which currently amounts to Ksh7.7 trillion is comprised of Ksh 3.7 trillion domestic debt and Ksh 4 trillion external debt. Commercial banks are the prime holders of the government’s domestic debt at 50.74%, pension funds hold 31.11%, insurance firms hold 6.75%, other investors hold 5.94% and Parastatals hold 5.45%.

• Mortgage defaults rose by 48% to Ksh70.5 billion in the year to March. Data from the Central Bank of Kenya reveals that mortgages recorded highest growth in non-performing loans (NPLs) from Sh47.5 billion in March last year. Banks have raised their debt recovery efforts leading to a spike in auctions. This reflects the extensive damage in the real estate sector in the wake of Covid19 economic hardships.

• Bond turnover at Nairobi Stock Exchange (NSE) increased by 59% in the first half of the year as compared to the same period last year. Investors traded bonds worth Ksh469.7 billion in the first half of this year compared to Ksh 294.6 billion in the first half of last year. The turnover is ascribed to investors looking for low-risk,stable returns in a tough economy and a liquid money market especially in the second quarter of last year.

• Global foreign direct investments (FDI) flows are expected to increase by 10% to 15% this year, after a 35% drop last year due to the Covid19 pandemic. The lockdowns around the globe prompted investors to pause investment projects and companies avoided new projects. However, even with the increase , foreign investments will still be below pre-pandemic levels.

• Standard Chartered Bank has cut the interest rate on new mortgages and waived legal and valuation fees for customers moving existing facilities from other banks in the next three months in a bid to win new customers and grow home loans. The interest rates will be variable depending on the market conditions such as benchmark lending rates.