Weekly Commentary – 24th July 2020

Foreign Exchange Reserves

The CBK’s usable foreign exchange reserves slightly declined for the second week in a row to stand at USD 9.42 bn (5.72 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 depreciated against major currencies over the week, trading against the USD at Kshs 108.02 up from Kshs 107.35, the Euro it traded at Ksh 125.16 up from Ksh 122.51 against the Sterling Pound it traded at Ksh 137.42 from Ksh 134.92 recorded last week. The shilling was under pressure due to increased demand in the inter-bank market. However, it remained relatively strong against the regional currency.

Liquidity

The markets remained liquid from the previous weeks on account of government payments, open markets operations remained active during the week. The weekly mean of the daily weighted average inter-bank rate increased to 2.284% from 1.786% in the previous week. The volume transacted decreased by 36.33% to stand at Kshs 6.2 bn. Commercial banks’ excess reserves stood at Kshs 28.20 bn which was an increase from Kshs 10.90 bn. Remittance inflows increased by 12% to USD 288.5 million in June from USD 258.2 million in May. Inflows from US, South Africa and Saudi Arabia recorded the highest increases.

Fixed Income

T-Bills

T-bills subscription rate declined to 149.56% from 271.54% in the preceding week. The decline in the subscription level is owed to the auction of the reopened 5-year, 10-year and 15-year Treasury bonds which received bids of Kshs. 181.8 billion against Kshs. 60 million advertised. The subscription rates for the 91-day, 182-day, 364-day papers decreased to 270.41%, 13.88% and 236.90% respectively from 746.94%, 107.81% and 245.11%. The yields on the 91-day increased to 6.11% while yields on 182-day and 364-day papers decreased to 6.44% and 7.37% respectively.

T-Bonds

The bonds market registered decreased activity from the previous week with the total bond deals decreasing from 63 to 56, bonds turnover increased by 44.17% to Kshs 3.23 billion. In the international market, yields on Kenya’s Eurobonds declined by an average of 44.8 basis points. Similarly, the yields on the 10-year Eurobonds for Angola and Ghana declined.

Equities

The Equity Market closed the week with 9.60m traded shares valued at Kshs 221.70m against 23.2m shares valued at Kshs 543.5m transacted in the previous week. The market capitalization improved by 1.78% to Kshs 2.06 billion.

NASI and NSE 25 increased by 1.77% and 0.46% respectively, while NSE 20 decreased by 1.18%. and 0.49%, respectively. The increases were supported by the gains on the large cap stocks. Foreign investors continue to exit the market especially on the top five counters.

The Banking sector had shares worth Kshs 896m transacted a decline from Kshs 1bn and accounted for 27.13% of the week’s traded value, Manufacturing & Allied sector traded shares were worth Ksh 450 million and represented 13.63%. Safaricom rose from Sh 27.00 to Sh 28.10 from the previous week. It had shares worth Sh 1.8 billion transacted which represented 56.70% of the week’s traded value.

Alternative Investments

The derivatives market closed the week with 6 derivatives contract with a turnover of Kshs 165,980.

The I-REIT market registered improved activity with 7 unit deals from 4 and a turnover of Kshs 34,054 which was a decline from Kshs. 45,840 in the preceding week.

The were no activity in the ETF market.

Global and Regional Markets

Global stocks markets declined from the previous week. The MSCI World Index declined by 0.1%, while the MSCI Emerging Market increased by 0.51%. In the USA, DJI and S&P 500 declined by 0.76% and 0.28%. In Europe, STOXX Europe 600 declined by 1.45% and the FTSE 100 decreased by 2.65%. China’s SSEC decreased by 0.54%. On the New York stock exchange, falling stocks outnumbered advancing ones as losses in the Healthcare, Technology and Industrial sectors led shares lower.

On the regional front, the FTSE ASEA Pan African index decreased by 0.40%. The JSE All Share declined by 0.48% and Nigeria’s NGSSE increased by 0.58%. Within the EAC, Tanzania’s DSEI decreased by 0.01% and Uganda’s ALSIUG declined by 0.52%.

On the global commodities market, Crude Oil WTI closed the week high with 1.85% while the ICE Brent Crude increased by 1.53%. Gold futures prices increased by 4.85% to settle at $1,899.95 at the end of the week as investors fret inflationary pressure due to the aggressive monetary easing adopted by many central banks around the world.

Week’s Highlights

• Co-op Bank is set to make additional capital investments in Jamii Bora Bank from the Sh 1 billion previously reported, this comes after Shorecap II, private equity firm Catalyst, Cornerstone Enterprises and Nordic Microcap Investments that have a combined stake of 45% stated that they were not privy to the financial details of the proposed acquisition. Jamii Bora Bank has not held an AGM in the past two years nor published its financial results having received an exemption from the Central Bank of Kenya to facilitate its buyout. Some of the factors that affected the bank’s financial health include a Sh 412 million loan to Kenya Airways which was defaulted and Sh 500 million equity investment in Uchumi Supermarkets that has dropped to a current market value of Sh 19 million.

• On the international commodities market, gold future is projected to cross its all-time high of $1,920.85 set in September 2011, on the back of low interest rates and trillion of dollars of Covid-10 stimulus passed by governments and global centrals banks that have debased conventional currencies and heightened inflation fears. In the U.S. Congress has passed three Corona Virus stimulus packages worth $3.3 trillion and is debating a fourth one worth $1 trillion, EU leaders, meanwhile, agreed on a historic $857 billion stimulus recovery fund to rescue their economies from the pandemic.

• I&M Holdings is seeking to acquire Uganda’s Orient Bank Limited at Sh 2 billion for a 90% stake. These is in line with the bank’s desire to enter into the Ugandan market in pursuit for growth and regional diversification. The bank is currently in Kenya, Rwanda, Tanzania and Mauritius other rival banks such as Equity Bank Group, KCB Group and DTB Group have a regional presence.

• Access Bank, a Nigerian top lender has completed the acquisition of a 99.98% stake of Transnational Bank at a cost of Sh 1.4 billion. Access Bank views the acquisition as a key gateway for the East African market. Access Bank is listed on the Nigerian Stock Exchange with assets worth Sh 1.17 trillion.

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