Cytonn: First Quarter 2023 Markets Review

Sub-Saharan Africa Region Review
According to the International Monetary Fund (IMF), the Sub Saharan economy is projected to grow at a moderate rate of 3.8% in 2023, unchanged from 3.8% in 2022. Notably, the projection is an upward revision from both the World Bank’s Global Economic Prospects – 2023 and the initial IMF Regional outlook projection of 3.6%. The upward revision of the regional growth by the IMF is mainly as a result of expected easing of inflationary pressures in line with the ongoing reduction of global inflation as the central banks around the world continue to tighten the monetary policies aimed at bringing down the inflation rate to the target ranges. However, the growth is expected to be significantly weighed down by sustained supply constraints worsened by the geopolitical tensions arising from the Russia-Ukraine invasion given that most countries in the Sub-Saharan African are net importers, adverse weather conditions that have undermined agricultural productivity, and elevated risk of debt distress in the region;

In Q1’2023, all of the selected Sub-Saharan currencies depreciated against the US Dollar, similar to the trend witnessed in FY’2022. The currency depreciation trend is attributable to the elevated inflationary pressures in region, high debt servicing costs that continue to dwindle foreign exchange reserves and monetary policy tightening by advanced economies. Additionally, Sub-Saharan Africa (SSA) stock markets recorded mixed performance in Q1’2023, with Nigeria’s stock market (NGSEASI) being the best performing market gaining by 2.5% YTD due to rallying of global fuel prices with the country being a net fuel exporter; Read More

Kenya Macro Economic Review
The Kenyan is economy projected to grow at an average of 5.3% in 2023, 0.3% points lower than the 5.6% growth recorded in 2022, attributable to the sustained inflationary pressures, elevated global risks and erratic weather conditions. The average inflation rate increased to 9.1% in Q1’2023, compared to 5.3% in Q1’2022, attributable to increase in food and fuel prices during the period under review. The sustained inflationary pressures reflected in deterioration of general business environment in Q1’2023, with the average Purchasing Manager’s Index for the first two months of the quarter coming at 49.3, compared to 51.7 recorded in a similar period in 2022, mainly on the back of elevated commodity prices, which have resulted in reduced consumer spending. Additionally, in a bid to contain the elevated inflation rate which came at 9.2% in March 2023 similar to what was recorded in February 2023, and 1.7% points above the CBK upper ceiling of 7.5%, the Monetary Policy Committee (MPC) decided to raise the Central Bank Rate (CBR) by 75.0 bps to 9.50% in their March 2023 sitting from 8.75% in January 2023. The action to tighten the monetary policy was in line, although higher than our expectation of a 25.0 bps increase; Read More

Fixed Income
During Q1’2023, T-bills were oversubscribed, with the overall subscription rate coming in at 135.8%, up from 108.5% in Q4’2022. Investor’s preference for the shorter 91-day paper persisted as they sought to avoid duration risk, with the paper receiving bids worth Kshs 217.8 bn against the offered Kshs 48.0 bn, translating to an oversubscription rate of 453.5%, higher than 364.9% recorded the previous quarter. Overall subscriptions for the 182-day and 364-day papers increased to 95.1% and 49.5% from 65.9% and 48.5% in Q4’2022, respectively. The yields on all the papers were on an upward trajectory with the average yields on the 364-day, 182-day and the 91-day papers increasing by 48.3 bps, 34.2 bps and 41.8 bps to 10.6%, 10.1% and 9.6%, from 10.1%, 9.7% and 9.2%, respectively, recorded in Q4’2022. The government also issued one new Treasury bond and one infrastructure bond, re-opened three bonds and offered five of them on tap sale, seeking to raise Kshs 190.0 bn. The bonds were generally undersubscribed, receiving bids worth Kshs 164.1 bn against the offered Kshs 190.0 bn, translating to a subscription rate of 86.4%;

During the week, T-bills were undersubscribed, with the overall subscription rate coming in at 34.4%, a continued decline from the 49.2% recorded the previous week, attributable to persistent tightened liquidity in the money market evidenced with the average interbank rate increasing to 7.6% from 7.2% recorded the previous week. Investor’s preference for the shorter 91-day paper persisted as they sought to avoid duration risk, with the paper receiving bids worth Kshs 2.9 bn against the offered Kshs 4.0 bn, translating to an undersubscription rate of 72.6%, significantly lower than the 179.4% recorded the previous week. Notably, the 182-day and 364-day papers recorded undersubscriptions of 35.5% and 18.1% from an undersubscription rate of 87.7% and 43.7%, respectively, recorded the previous week. The government accepted bids worth Kshs 8.0 bn and rejected Kshs 0.3 bn out of the total Kshs 8.3 bn bids received, translating to an acceptance rate of 97.2%. The yields on the government papers were on an upward trajectory, with the yields on the 364-day paper, 182-day and 91-day papers increasing by 1.3 bps, 5.5 bps and 7.8 bps to 10.8%, 10.4% and 9.9%, respectively; Read More

Equities
During Q1’2023, the equities market was on a downward trajectory, with NASI, NSE 20 and NSE 25 declining by 11.5%, 3.2% and 5.4%, respectively. The equities market performance during the quarter was driven by losses recorded by large caps such as Safaricom, Bamburi, KCB Group, and NCBA Group of 25.1%, 11.0%, 6.8% and 6.7%, respectively. The losses were however mitigated by gains recorded by banking stocks such as Standard Chartered Bank (SCBK), Co-operative Bank, ABSA Bank and NCBA Group of 19.1%, 6.9%, 4.1% and 2.5%, respectively;

During the first quarter of 2023, listed banks in Kenya released their FY’2022 results, recording an increase in their earnings growth, with their average core Earnings per share (EPS) recording a weighted average growth of 26.5%, compared to a weighted average growth of 83.2% in FY’2021. The performance is however largely skewed by the strong EPS growth from HF Group, Diamond Trust Bank of Kenya and NCBA Group of 138.9%, 53.9% and 34.8%, respectively; Read More

Real Estate
In Q1’2023, Kenya’s Real Estate sector recorded notable growth in terms of activity compared to the similar period in 2022, attributable to continued growth of the Kenyan economy enabling increased Real Estate property transactions. In the Nairobi Metropolitan Area (NMA), the residential sector recorded improved performance with a 0.4% points y/y increase in average total returns to 6.1% from the 5.7% recorded in Q1’2022. The commercial office sector recorded average rental yields of 7.6% in Q1’2023, representing a 0.3% points y/y increase from 7.3% recorded in Q1’2022. The retail sector recorded average rental yields of 8.0% in Q1’2023, representing a 0.1% points y/y increase from 7.9% recorded in Q1’2022. The land sector recorded an average annualized capital appreciation of 5.7% in Q1’2023, with un-serviced land prices in satellite towns realizing the highest capital appreciation at 14.2% y/y; Read More

Disclaimer: The views expressed in this publication, are those of the writers where particulars are not warranted. This publication, which is in compliance with Section 2 of the Capital Markets Authority Act Cap 485A, is meant for general information only, and is not a warranty, representation, advice or solicitation of any nature. Readers are advised in all circumstances to seek the advice of a registered investment advisor.