- The All Share Index continued on its gain momentum today (+1.0%) closing the day at 140.68. This was driven by price gains on large cap counters: Equity (+4.3%), KCB (+4.3%) and Safaricom (+1.0%).
- There was notable demand on Equity, Safaricom and EABL. However, EABL remains relatively unchanged despite this demand and the profit-warning announcement. We opine that such profit warnings particularly from fundamentally stable companies may not elicit any negative reaction (The poor performance is expected in this kind of economic environment. No earnings surprise there).
- We expect the upward momentum to be maintained in the coming days.
Forex Reserves Rise to a Four-Month High
Kenya’s forex reserves have risen to USD 8.532 bn/5.14 months of import cover (the highest level in four months) following the disbursement of a USD 739.0 mn loan from the International Monetary Fund (IMF).
This is the highest level since January 9th 2020, where forex reserves stood at USD 8.543 bn/5.19 months of import cover.
In the last few months, forex reserves have adopted a downward trajectory:
o External payment obligations such as interest on external debt.
o Reduced foreign exchange inflows predominantly from horticulture and tourism as a result of the COVID-19 pandemic (resulting in a wider current account deficit of 6.2% of GDP in the 12 months to March 2020, from 5.8% of GDP as at December 2019).
o Intervention efforts by the Central Bank of Kenya (CBK) to shore up the Kenya Shilling – which has been under pressure against the US Dollar.
According to the CBK, foreign exchange reserves are expected to remain sufficient in the remainder of 2020 principally supported by:
o Financial inflows from international finance institutions (World Bank, IMF) for the purpose of supporting the government in financing the fiscal interventions and public health costs brought on by the COVID-19 pandemic.
o Lower petroleum import costs, expected to decline by $1.1 billion.
We expect the CBK to take advantage of the boost in forex reserves to continue to support the Kenya Shilling especially in the wake of
reduced inflows horticulture and tourism and diaspora remittances.
Thus, we anticipate some stability in the Kenya Shilling in the next few months.
Long Term Buy- KCB, Equity, Absa, Stanbic, NCBA
Sell- Stanchart, Bamburi, KQ