Kenyan Shilling weakens across the board as Central Bank rate raised to 10%

British American Tobacco Faces Stricter Regulations

The NSE All Share Index decreased by 0.02% to 162.36 points, a second minor change this week, as a balanced performance on the local bourse extend little change. This result was mirrored by the market breadth that saw the number of stocks that declined, 18 stocks, slightly outweigh the number of stocks that advanced, 15 stocks; closing a disparate gap that saw the A-D ratio more than double last week.

The NSE-20 Share Index continued to drop, shedding 0.34% to 4754.42, as Market Capitalisation followed suit and decrease 0.11% to KES 2.270Tn. Equity turnover increased 1.74% to KES569.80 Bn, as some 27 million shares were traded in 1,500 deals.

One of the leading performers last year, British American Tobacco (BAT), saw its counter shed recently made gains as more stringent tobacco laws, display of a pictogram showing health warnings and a two percent health tax, came into effect at the close of last week.

Anticipated to come into effect after the reading of the national budget, management had forecast that it would affect Q2 FY2015 results. However the announcement of US-based tobacco company, Alliance One International, on the scaling back of its Kenyan operations has exacerbated investors apprehension, particularly foreigners; realised as the company record an 8.4% drop- to Sh707 in shares over a week. BAT shed 1.12% today to Sh703.

NSE Equity Market Highlights

Safaricom Ltd (NSE: SCOM) remained the most traded stock of the day, for the fourth consecutive day, accounting for 60.22% of the total value traded. East African Breweries Ltd (NSE: EABL) was the second most actively traded counter, responsible for 7.46% of daily trades.

Unga Group Ltd (NSE: UNGA) was the highest gaining stock of the day up 8.57% to KES 47.50. A close second National Bank of Kenya Ltd. (NSE: NBK) gained 5.83% to KES 127.00. As the Manufacturing and Allied sectors and Banking Sectors have continuously produced the top two gaining stocks.

Standard Group Ltd. (NSE: SGL) was the main losing stock dropping by 8.09% to KES 33.25, as Express Kenya Ltd. (NSE: XPRS) dropped 5.98% to KES 3.50.

Foreign Investor Participation

Foreign investor participation held steady during Tuesday’s trading session accounting for 66.44% of total turnover against 33.56% local participation. Investor’s shifted positions illustrating preference for distributive activities; resulting in net outflows worth KES 18.65Mn compared to net inflows worth KES 59.41Mn on Monday.

Foreign investors accounted for 66.44% of the NSE turnover as compared to 61.17% on Monday.

Investors were dominant on the selling front recording net outflows worth KES 18.65Mn relative to net inflows worth KES 59.41Mn on Monday.

Safaricom Limited (NSE: SCOM) was the day’s highest traded stock, recording a turnover of KES 284.09Mn to account for 49.86% of total market activity and 75.04% of foreign activity and East African Breweries Limited (NSE: EABL) followed with a turnover of KES 18.05Mn representing 4.77% of total market activity and 3.77% of foreign activity.

Nairobi Stock Exchange Limited (NSE: NSE) posted the day’s highest inflows of KES6.84Mn, whilst Safaricom Limited (NSE: SCOM) posted the day’s highest outflows worth KES 26.20Mn.

Currency

Performance: The Kenyan Shilling weakened across the board during Tuesday’s trading session as the market absorbed the Central Bank’s decision to raise its key benchmark rate by 150bps to 10% from for the first time since December 2012.

The USDKES shed 0.96% to 97.87% as dollar demand from the telecommunication sectors triggered supply side constraints. The local exchange also succumbed to a significant loss of 2.62% against the Euro.

The single unit currency strengthened against major global peers gathering support from a rise in German bund yields and solid German data that fuelled optimism about the euro zone’s economic prospects.

Despite a drop in Inflation in May 2015, the CBK’s decision to adopt a tightening monetary stance has been advocated on the grounds chronic volatility in the global foreign exchange rate markets as well as growing demand side pressures.

As a result, we expect the cautionary tightening bias stance to curb the rapid depreciation in the exchange rate that has plagued the market in previous weeks.