Weekly Commentary – 25th February 2022

Foreign Exchange Reserves

The CBK’s usable foreign exchange reserves remained adequate at USD 8,130 million (4.97 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 marginally against the Dollar, but appreciated against the Euro and the Sterling Pound. The depreciation against the Dollar is attributable to increased Dollar demand from energy and commodity importers.

	Week Before	Week After
Dollar	113.67	113.82
Euro	129.22	127.76
Sterling Pound	154.30	152.89

Liquidity

Liquidity in the money markets tightened, supported by tax remittances which partly offset government payments. Open market operations remained active.

	Week Before	Week After
Interbank rate	4.48%	5.50%
Interbank volume (billion)	11.77	5.04
Commercial banks’ excess reserves (billion)	26.20	17.0

Fixed Income

T-Bills

The T-Bills became under-subscribed during the week. The highest subscription was recorded in the 364 day paper, which offered higher yields. The under-subscription is attributable to the concurrent KMRC bond which offered higher returns as well as reopened bonds’ sale in the primary bond market.

T-Bill	Yield (% Rate)		Subscription Rate
	Week Before	Week After	Week Before	Week After
Overall			111.54	63.63%
91 day	7.25%	7.25%	37.23%	50.29%
182 day	8.08%	8.06%	101.49%	40.35%
364 day	9.72%	9.76%	151.31%	92.24%

T-Bonds

The bonds market had high demand for the week’s bond offers. Bonds turnover increased to Kshs 22.53 billion from Kshs 7.09 billion recorded in the previous week.

In the primary bond market, the Treasury has reopened three bonds: FXD1/2021/05, FXD1/2020/15 and FXD1/2021/25 as it targets to raise Sh 50 billion for budgetary support.

In the international market, yields on Kenya’s Eurobonds increased by an average of 86.6 basis points. The yields on the 10-year Eurobonds for Ghana and Angola also increased.

Equities

NASI, NSE 20 and NSE 25 decreased by 4.16%, 1.73% and 3.20% respectively. Market capitalization also declined by 4.16% to 2.49 trillion. The performance was driven by losses recorded by large-cap stocks. Top losses were recorded in Safaricom Plc, NCBA and Diamond Trust Bank Kenya which decreased by 6.10%, 3.40% and 3.40% respectively.

The Banking sector had shares worth Kshs 544M transacted which accounted for 23.30% of the week’s traded value, Manufacturing & Allied sector had shares worth 286M transacted which represented 12.28% and Safaricom with shares worth Kshs 1.4B transacted, contributed 61.26%.

Top Losers	W-o-W
Unga Ltd	-9.00%
Olympia	-8.13%
Sameer	-7.87%
EA Cables	-6.67%
Sasini	-6.07%

Alternative Investments

	Week Before	Week After	% Change
Derivatives Turnover (million)	3.73	3.71	-0.29%
Derivatives Contracts	26	47	80.77%
I-REIT Turnover	0.91	0.29	-67.83%
I-REIT Deals	62	36	-41.94%

Global and Regional Markets

Global Markets	W-o-W
S&P 500	0.82%
Dow Jones Industrial Average (DJI)	-0.06%
FTSE 100 (FTSE)	-0.32%
STOXX Europe 600	-1.58%
Shanghai Composite (SSEC)	-1.13%
MSCI Emerging Markets	-4.85%
MSCI World Index	-0.11%

Continental Markets	W-o-W
FTSE ASEA Pan African Index	-3.11%
JSE All Share	-2.13%
NSE All Share (NGSE)	0.40%
DSEI (Tanzania)	-0.61%
ALSIUG (Uganda)	1.53%

U.S stocks closed the week mixed, due to the volatility in stocks following the geopolitical tensions resulting from Ukraine’s invasion by Russia. Stocks tumbled and oil prices soared as investors rushed to gold, the Dollar and other safe havens as they monitor the next moves of the Federal Reserve.

European stocks closed the week lower, after Russia invaded Ukraine, turning a diplomatic crisis into an all-out war, with investors digesting the full extent of the invasion and its impact on global growth, owing that European countries source their energy supplies from Russia.

Asia Pacific stocks also closed the week low, as investors focused on the crisis in Eastern Europe. The West has also expanded sanctions against Russia, with the U.S. joining German sanctions. Volatility is expected in the coming months.

On the global commodities markets, Crude Oil WTI closed the week high by 6.26% and the ICE Brent Crude increased by 4.69%. Gold futures prices declined by 0.64% to settle at $1,887.60.

Week’s Highlights

• The International Monetary Fund (IMF) and the World Bank have in the recent years increased their lending to Kenya, a move that has seen a decline in the deals of Chinese loans whose debt repayment terms are not made public. World Bank’s total lending rose by Sh517 billion from June 2019 to Sh1.125 trillion in December, while IMF lending grew from Sh158.5 billion to Sh207.5 billion in the same period, with a huge chunk of the loans coming in the wake of Covid-19 economic hardships.

• The government has paid oil marketers Sh 8 billion as fuel subsidy for keeping pump prices unchanged in the monthly review following public uproar over the high cost of basic items. This move will boost the cash flows of the firms that have since suffered delayed compensation, after the Treasury diverted Sh20.1 billion from the kitty to other State agencies, leading to the depletion of the fund.

• The Kenya Mortgage Refinancing Company (KMRC) intends to source a consultant to come up with standard lending terms for home loans in the banking industry as part of a strategy to come up with a secondary mortgage market of mortgage-backed securities where banks will pool home loans of similar characteristics, sell to investors through brokers and the investors gain by earning monthly mortgage repayments from home buyers in the future.

• Horticultural exports’ earnings surged by 7% to a historical high of Sh 158 billion, retaining the leading position of foreign exchange earner for the last two years. The improved earnings was as a result of increased demand for Kenyan horticultural produce in the world market, with the European Union accounting for the largest portion of Kenyan horticultural exports, taking in 45% of the commodities mainly comprising cut flowers, French beans, snow peas and Asian vegetables.

• The parliament has successfully amended the 2022/23 Budget Policy Statement, directing the National Treasury to increase the country’s debt ceiling to allow borrowing of Sh846 billion to meet the budget deficit in the next financial year. The debt ceiling, which currently stands at Sh 9 trillion from Sh 6 trillion in October 2019, may be increased to Sh 13 trillion or 55% of the GDP.

• Oil prices surged to a seven-year high of over $100 per barrel while equities plunged due to investors’ jitters, following Russia’s military operation in Ukraine. Investors also sought safe havens in gold and the Japanese Yen. The crisis comes as governments struggle to contain runaway inflation fueled by demand following the lifting of Covid-19 lock downs.

• Satrix MSCI India Feeder Exchange Traded Fund (ETF) has been listed on the Johannesburg Stock Exchange (JSE), exposing South African investors to the Indian stock market. Shares in this global ETF, will trade under the code STXNDA on the JSE.