Weekly Commentary – 5th February 2021

Foreign Exchange Reserves

The CBK’s usable foreign exchange reserves remained adequate at USD 7,617 million (4.68 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 appreciated against all major currencies. It appreciated against the Dollar to trade at Kshs 109.82 from Kshs 110.14. It appreciated against the Sterling Pound and the Euro to trade at Kshs 149.74 and Kshs 131.69 from 150.55 and Kshs 133.16 respectively. The weakening of the dollar is attributable to subdued dollar demand from importers.

Liquidity

Money markets remained relatively liquid supported by government payments which partly offset tax remittances. The inter-bank rate decreased to 5.40% from 5.61% recorded in the previous week. The inter-bank volume decreased to Kshs. 10.85 billion from Kshs. 12.05 billion. Commercial banks’ excess reserves stood at Kshs. 13.0 billion which is a decrease from Kshs. 13.7 billion. Open market operations remained active.

Fixed Income

T-Bills

The T-Bills subscription rate decreased to 70.0% down from 66.2% the preceding week and remained under-subscribed. The under-subscription in T-Bills is attributable to the concurrent primary bond offer. The 91-day paper was under-subscribed at 12.62% down from 12.72%, the subscription rate for the 182-day and 364-day papers stood at 20.85% and 142.10% from 19.70% and 134.17% respectively. The yields on the 91-day paper decreased marginally to 6.87% from 6.90%. The yields on 182-day and 364-day papers increased marginally to 7.59% and 8.72% from 7.58% and 8.62% respectively.

T-Bonds

The bonds market had high demand for the weeks bond offers. Bonds turnover decreased, with bonds turnover closing in at Kshs. 21.21 billion from Kshs. 34.21 billion registered in the previous session. Overall subscription rate for the bonds offered was 83.72%. The reopened auctions were FXD1/2013/15 and FXD1/2012/20 with fixed coupon rates of 11.25% and 12%, and effective tenors of 7.1 years and 11.8 years respectively. The government rejected high bids only accepting Kshs 32.12 bn out of the Kshs 41.86 bn worth of bids received, translating to an acceptance rate of 76.7%.

Equities

The Equity Market closed the week with 8.61 million shares traded with equity turnover of Kshs 298.9 million against 22.8 million shares traded with equity turnover of Kshs 614.8 million in the previous week. Market capitalization increased slightly by 0.98% to Kshs 2.41 billion.

NASI and NSE 25 increased by 0.98% and 1.25% respectively. NSE 20 declined by 0.85%. The performance was driven by gains recorded by large-cap stocks. Top gains were recorded by East Africa Breweries Ltd, British American Tobacco, KCB Group and Equity Group Holdings which increased by 10.2%, 3.6%, 3.4% and 2.1% respectively.

The Banking sector had shares worth Kshs 1.3Bn transacted which accounted for 42.38% of the week’s traded value. Manufacturing & Allied sectors represented 4.81% and Safaricom with shares worth Kshs 1.5Bn transacted contributed 49.72%.

Top Losers	W-o-W
Nation Media Group	-12.75%
DTB Kenya	-9.87%
Sanlam	-9.62%
Sasini	-7.56%
Standard Group	-7.32%

Alternative Investments

The derivatives market over the week recorded 106 contracts having a turnover of Kshs 2.6 million from 67 contracts having a turnover of Kshs 6.5 million in the previous week.

I-REIT market over the week recorded a turnover of Kshs 0.25 million with 29 deals which was a decline from Kshs 0.32 million recorded over the close of last week.

The ETF market registered no activity.

Global and Regional Markets

Global Markets	W-o-W
S&P 500	4.65%
Dow Jones Industrial Average (DJI)	3.89%
FTSE 100 (FTSE)	1.28%
STOXX Europe 600	3.46%
Shanghai Composite (SSEC)	0.38%
MSCI Emerging Markets Index	4.95%
MSCI World Index	4.20%

Continental Markets	W-o-W
FTSE ASEA Pan African Index	0.29%
JSE All Share	2.76%
NSE All Share (NGSE)	-1.66%
DSEI (Tanzania)	2.33%
ALSIUG (Uganda)	2.24%

Global stocks reached their best week since November, due to investors’ excitement surrounding biotech which released a promising study on its drug candidate for the treatment of Alzheimer’s disease. Investors are contemplating what they believe are structural changes in the way that healthcare operates.

U.S stocks gained over the week as the S&P 500 and NASDAQ indexes scored their biggest weekly percentage gains since the U.S. elections in early November. This was boosted by optimism over earnings, stimulus talks, and progress on vaccine roll-outs A smaller-than-expected rebound in the U.S. labor market last month highlighted the need for more government aid to shore up the economy.

On the regional front, the JSE All Share Index increased by 2.76% due to the strengthening of South Africa’s rand, boosted by signs of a smaller fiscal deficit and faster procurement of Covid-19 vaccines ahead of the budget speech later in the month.

On the global commodities, the Crude Oil WTI gained 8.91% over the week and ICE Brent Crude increased by 6.19%. Gold Futures decreased by 2.02% to settle at $1,813.00.

Week’s Highlights

• Banks have posted the lowest 11-month pre-tax profit in eight years, citing Covid-19 related disruptions that led to loan defaults and restructuring. Pretax earnings in the period ended November 2020 declined by 28.2% to 107.7 billion from 150.1 billion in a similar period last year. Major tier 1 banks including Standard Chartered, Absa, Co-operative Bank and Diamond Trust Bank have issued profit alerts

• M-Pesa revenues have rebounded following the reinstatement of person to person transaction fees. Revenues globally, excluding Kenya rose 10% to 8.5 billion in the fourth quarter of 2020 compared to 7.7 billion a year earlier. M-Pesa customers also increased by 7.7% to 16 million. This has improved Safaricom’s valuation at NSE by 104.17 billion year to date. Shares also hit an average all-time high of Kshs 36.85, representing a 7.6% year to date gain.

• Centum Real Estate has listed its 3 billion corporate bond at the NSE, following approval by Capital Markets Authority and NSE. This gives buyers a platform to trade the security by cashing in or re-balancing their portfolios on a need basis before its maturity in 2023 – an indication that there is rising investor appetite in the corporate debt securities market.

• Communication Authority of Kenya says it would ease laws on restrictive trade practices to speed up recovery in various sectors of the economy such as manufacturing, horticulture and tourism. However, the joint market shares shouldn’t exceed 15% on the basis of average market sales.

• Tanzania’s earnings from gold exports rose 34% in 2020, fetching $2.95 billion compared to $2.21 billion recorded in 2019, attributable to increased output and higher prices in the market. The current account deficit narrowed to $662 million from $ 1.3 billion as imports declined by 30% to $1.25 billion while exports of manufactured goods rose 13% to $912 million.

• Alibaba Group Holdings plans to issue a 40-year bond to raise $5 billion to finance sustainability-related projects. Big global banks such as Citi Group, Credit Suisse, Morgan Stanley, and JP Morgan are listed as book-runners for the planned bond sale. Alibaba’s earnings rose by 52% in the last quarter of 2020 and has been rated A1 by Moody’s.