Monthly Report

Monthly Market Review December 2018

East African Community

Kenya: GDP Grows by 6% in Q3 2018

The Kenyan economy recorded an average growth of 6.0% for the first three quarters of 2018, compared to an average of 4.7% in a similar period in 2017. The growth was mainly supported by recovery in agriculture due to improved weather conditions, increased output in manufacturing, wholesale & retail trade sectors, and continued recovery of the tourism sector. Market analysts now project that the 2019 GDP growth will come in between 5.7% and 5.9%, lower than the 6.2% suggested by some quarters. The economy is set to receive backup from the continued growth of the agricultural sector, as a result of expected improvement of weather conditions.
The government has increased budgetary allocation to the agricultural sector for ongoing irrigation projects, strategic food reserves, cereal, and crop enhancement and crop insurance schemes, in order to enhance food security and nutrition, which is a key pillar on the “Big 4 Agenda”. There is continued strong growth in the real estate and tourism sectors. Tourism has continued to record doubled digits growth, having averaged 15.1 percent in the first three quarters of 2018 mainly boosted by a rise in the number of visitors’ arrivals as well as a notable rise in conference activities.

Tanzania: World Bank, EU Cut Down on Aid

The EU, Tanzania's biggest development partner, and the World Bank have recently taken measures to sanction repressive policies, concerned by crackdowns on human rights. In November, the EU said it would thoroughly review its financial support, more than $100 million a year, in response to moves that undermined human rights and the rule of law. The EU's decision to reconsider its aid coincided with one by the World Bank to freeze a $300 million loan for girls' education in protest against a move to expel pregnant girls from school and forbid them to continue their education after giving birth. Meanwhile, Denmark announced the withdrawal of $10 million in aid owing to "unacceptable homophobic remarks".

Uganda: Economy to Grow at 7% over next 5 Years

TUganda’s economic growth will likely accelerate to 7% over the next 3-5 years if public infrastructure investments including in the oil sector remain at a “high level,” according to the central bank. These infrastructure investments, the report said, will “remain at a high level over coming years. This should, in turn, continue to have positive spillover effects on private sector investment activity and spending.”

Financial Markets Review

Kenya Inflation Inches Up to 5.7%

Kenya's inflation inched up marginally to hit a 3-month high of 5.71% from 5.58% in November. Between November and December 2018, the Food and Non-Alcoholic Drinks’ Index increased by 1.05%. Consequently, the year on year food inflation in December 2018 stood at 2.54% Tanzania’s inflation for December 2018 rose marginally to 3.3% from 3.2% in November as the food and non-alcoholic beverages inflation increased to 1.1% from 0.4% recorded in November, 2018. Uganda's inflation declined to 2.2% from 3.0% in November, due to annual food inflation, which decelerated further to minus 5.0% compared to minus 3.3% recorded in November 2018.

Bank of Uganda Retains Benchmark Rate at 10.0%

Having assessed the risks and uncertainties surrounding inflation as well as the growth outlook, the MPC in its final meeting of 2018 decided to maintain the central bank rate at 10.0%, citing an improvement in the 12-month forward inflation forecasts.

Regional Inflation Rates

Central Bank Rates

Lower Liquidity Levels Observed in the Month

Kenya’s money market was less liquid during the month. The average interbank rate for the month of November rose to 8.0% compared to 4.1% observed in November 2018. The sharp increase was due to Central Bank mopping up liquidity to give support to the shilling in the month. T-bill rates closed the year trending higher than the previous month with the 91-day T-bill declining to 7.3% from 7.4%, the 182-day rising to 9.0% from 8.3% and the 364-day also increasing to 10.0% from 9.5%..

Secondary Market Yields Ticked Upwards in the Month

The yield curve remained fairly stable, rising by an average of 9.32 basis points during the month. The most significant increase in yields was observed across the short sections of the curve (1-5 year papers). The Central Bank of Kenya (CBK) issued a 10-year bond (FXD2/2018/10) to raise a total of KES 40.0bn. Total bids accepted in both the auction amounted to KES 26.2bn, at an average rate of 12.50%.

Treasury Bill Rates

NSE Yield Curve

Treasury Bill Rates

NSE Yield Curve

The Kenya Shilling Was Stronger Against Major Currencies

The Kenya Shilling (KES) strengthened against major global currencies in the month, gaining 0.8% against the US Dollar (USD), 1.7% against the Pound Sterling (GBP) and 0.4% against the Euro (EUR). We expect the KES to remain range bound between KES 101.00 - 102.00 against the USD in January 2019. The KES also had better performance against regional currencies; appreciating by 0.1% against the Uganda Shilling (USH), 0.4% against the Tanzanian Shilling (TSH) and 0.8% against the Rwandan Franc (RWF).

Stock Prices had Largely Negative Performance across Regional Stock Markets in the month

Equities markets across the region had mixed performance in the month. The Tanzania market came in as the best performer regionally in the year. The NSE All Share Index was down 2.8% in the month closing at 142.00 points, while the NSE-20 Share Index was flat, gaining just 0.1% m/m to close at 2800.95 points. The DSEI (Dar es Salaam Securities Exchange All Share Index) was down 1.3% in December 2018 to close at 2,041.39 points. The UASI (Uganda Securities Exchange All Share Index) was down by 4.0% in the month to close at 1,649.39 points.

Treasury Bill Rates

NSE Yield Curve

Disclaimer: The information in this document is provided as general information based on data obtained from sources deemed to be reliable, and does not constitute recommendation or solicitation by Britam Asset Managers (Kenya) Limited. All reasonable precautions have been taken to ensure the correctness and accuracy of the Information. However, the correctness and accuracy is not guaranteed and Britam Asset Managers (Kenya) Limited accepts no liability for any errors, mistakes or omissions. You are advised to first seek independent professional advice on the merits and risks involved in potential investment opportunities.

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