NSE Performance

Over the course of trading last week, Kenyan shares blasted to a nine-month high on Thursday and Friday as they rose for the sixth straight session to 3,677.81 on Thursday. This could be attributed to investors pouring their funds back into equities largely due to falling inflation and the decline observed on government yields. The level attained by the NSE 20-share index was last observed in August 2011 when it closed at 3,721.53 points. The index is up 14% this year after shedding a third of its value last year due to lack of investor confidence caused by high inflation and poor performance of the Kenya Shilling.

Kenya Airways jumped 8.4% to a two-month high of KES 16.10 shillings. This comes a few weeks before the airline announces the results of its rights issue. Investor expectations concerning the announcement and the announcement by Virgin Atlantic, one of their competitors, that it would stop its direct flights to Nairobi by September due to high fuel costs and low passenger numbers may be attributed to the increase. This is good news to shareholders as it comes a few weeks before the company announces the results of their rights issue. Before the rights issue the share was struggling to trade at the rights issue price of KES 14 per share, during the issue the share traded above KES 14 and attained a high of KES 14.95 just before the issue closed. After the issue the share has traded above KES 14 but at a constant decline reaching a low of KES 14.25. However, the declining trend seems to have come to an end on the 9^th of May the share and since then it has been on a steady increase.

Barclays Bank of Kenya climbed 3.1% on Thursday to KES 13.45 shillings after it reported a 29% rise in first-quarter profit as compared to the same period last year.

Kenya Shilling Behaviour

On the foreign exchange market, the shilling inched lower and lower. Over the course of trading during the week, the shilling fell past the 84 to the dollar mark to trade at KES 84.60 per USD.  This fall in value could be explained from two perspectives; the US Dollar strengthening against the Kenya Shilling and the Kenya Shilling weakening against the US Dollar.

From the first perspective, the US Dollar has strengthened against most global currencies buoyed by uncertainties in the Eurozone. This has caused investors worldwide to transfer capital previously held in Euros to US Dollars and this global demand for dollars has put downward pressure on several currencies, including our Kenya shilling.

From the second perspective, the depreciation of the Kenya Shilling can be somewhat attributed to the following:

• The increased outflow of capital from the economy as less foreign investors are attracted to the short term government securities due to the falling yields observed on them. This increased demand for dollars has put downward pressure on our local currency and consequently caused the fall we are observing.
• The higher number of bids rejected by the CBK at recent auctions and also the large amount money in debt requirements paid out (coupons and interest) by the CBK to foreign investors has increased local demand for the US Dollar.
• Increased demand for dollars from oil importers.

A combination of both perspectives can explain the trend we have observed over the week.

CBK Activity

This week Central Bank of Kenya auctioned 182 day Treasury bills worth KES 2 billion. The CBK received 182 bids worth KES 3.34 billion but only accepted bids worth KES 1.94 billion. The security exhibited a subscription rate of 167%, following the oversubscription trend we have observed at previous auctions. The yields on 91-day Treasury bills also dropped to 10.075%.