Weekly Commentary – 4th December 2020

Foreign Exchange Reserves

The CBK’s usable foreign exchange reserves remained adequate at USD 7,954 million (4.89 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 and the Euro to trade at Kshs 111.06 and Kshs 134.44 from Kshs 109.98 and Kshs 130.91 respectively. The Shilling depreciated against the Sterling Pound to trade at Kshs 148.74 an increase of 134 basis points. The depreciation against the dollar is attributable to persistent dollar demand from importers as well as low inflows from sectors like horticulture and tourism.

Liquidity

Money markets remained relatively liquid supported by government payments. The inter-bank rate increased to 3.91% from 3.47% recorded in the previous week. The inter-bank volume decreased to Kshs 5.46 billion from Kshs 13.33 billion. Commercial banks’ excess reserves stood at Kshs 8.50 billion in relation to the 4.25% cash reserves requirement (CRR) which is an increase from Kshs 6.30 billion in the previous week. Open market operations remained active.

Remittance inflows increased to USD 263 million in October 2020 from USD 224 million over the same period in 2019, a 17.3% increase.

Fixed Income

T-Bills

The T-Bills subscription rate decreased to 45.49% down from 64.28% the preceding week and remained under-subscribed. The under-subscription in T-Bills is attributable to investor concerns over plans to delay interest payment on State bonds. The 91-day paper was under-subscribed at 74.28% down from 114.46%, the subscription rate for the 182-day and 364-day papers stood at 26.87% and 52.59% from 63.71% and 44.77% respectively. The yields on the 91-day, 182-day and 364-day papers increased marginally to 6.86%, 7.33% and 8.20% from 6.73%, 7.19% and 8.15% respectively.

T-Bonds

The bond market had subdued demand as interest rates for bond offers declined. Bonds turnover decreased with bonds turnover closing in at Kshs 0.78 billion from Kshs 3.11 billion registered in the previous session. Overall subscription rate for all two bonds offered was 140.0%. The two re-opened auctions were, FXD2/2013/15 and FXD1/2018/20 with fixed coupons of 12.0% & 13.2% and effective tenors of 7.5 years and 17.4 years, respectively. The government rejected high bids only accepting Kshs 53.7 billion out of the Kshs 56.0 billion worth of bids received, translating to an acceptance rate of 96.0%.

In the international market, yields on Kenya’s Eurobonds declined by an average of 10.4 basis points. The yields on the 10-year Eurobonds for Ghana and Angola also declined.

Equities

The Equity Market closed the week with 34.3 million shares traded with equity turnover of Kshs 1.09 billion against Kshs 16.1 million shares traded with equity turnover of Kshs 562 million in the previous week. Market capitalization increased by 3.39% to Kshs 2.28 trillion.

NASI, NSE 20 and NSE 25 increased by 3.36%, 1.61% and 2.16% respectively. The performance of the NASI was driven by gains recorded by large-cap stocks with the top losses being recorded in ABSA Kenya, Equity Group, and EA Breweries Ltd, which declined by 2.3%, 1.9% and 0.7% respectively.

The Banking sector had shares worth Kshs 42.5m transacted which accounted for 29.23% of the week’s traded value, Manufacturing & Allied sector represented 15.74% and Safaricom with shares worth Kshs 58 million transacted, contributed 39.97%.

Alternative Investments

The derivatives market over the week recorded 6 contracts having a turnover of Kshs 0.19 million from 3 contracts having a turnover of Kshs 0.13 million from 3 contracts in the previous week.

I-REIT market over the week recorded a turnover of Kshs 0.33 million with 41 deals which was an increase from Kshs 0.25 million with 39 deals recorded over the close of last week.

The ETF market over the week recorded a turnover of Kshs 4.3 million with 4 deals which was an increase from Kshs 0.4 million with 1 deal.

Global and Regional Markets

The S&P 500 Index gained 1.44% over the week supported by the positive news of the approval of the first Covid-19 vaccine by the UK government. The news of the prospect of another Covid-19 stimulus package also boosted market sentiment.

The FTSE 100 Index gained 2.87% as U.K. stocks climbed over the week. Major energy companies climbed on higher oil prices and drug companies gained due to the recent Covid-19 vaccine developments. Investors were keeping a close eye on Brexit talks, with the pound rising on hopes for a deal.

On the regional front, the JSE All Shares Index was up 2.79% due to gains from Kumba Iron Ore Ltd which gained 1.4%.

On the global commodities markets, Crude Oil WTI closed the week high with 1.60% and the ICE Brent Crude increased by 2.22%. Gold futures prices increased by 2.90% to settle at $1,840.00.

Week’s Highlights

• The Capital Markets Authority is reviewing the Collective Investment Schemes regulations to strengthen the industry and make it responsive to market dynamics. With the help of FSD Africa, CMA has hired a consultant to review the Capital Markets (Collective Investment schemes) regulations set in 2001. The review is meant to address concerns raised by stakeholders in the asset management sector and facilitate the creation of a vibrant fund management industry.

• Safaricom’s share of combined investor wealth at the NSE touched a high of 58.79% after weeks of a steady rise in its stock prices in a period that has seen other dominant stocks shed value. Safaricom’s dominance has boosted its influence in Kenya’s equity market.

• Kenya’s November inflation increased to 5.46%, up from 4.84% in October, a six-month high, last experienced in April this year (5.62%). Prices of beef with bones, wheat flour-white and tomatoes increased by 0.99%, 0.69% and 0.67%, respectively, while those of sifted maize flour, loose maize flour, and carrots went down by 1.47%, 1.52% and 1.11% respectively.

• M-PESA has partnered with Visa to enable M-PESA users to make payments on e-commerce sites like Amazon, send money internationally, and make cross-border payments. According to a report by Citi, “M-PESA is a principal license holder of Visa, in the same way, financial institutions would be.”

• Deloitte has warned that COVID-19 will severely impact the profitability of underwriters in Kenya. The East Africa Insurance Outlook Report 2020/21 says the impact of the pandemic on the insurance industry remains uncertain for now. The disruptive effects of the pandemic on the insurance business will remain for an extended period before the industry recovers.

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