Market Report
www . genghis-capital . com dry weather also impacted negatively on Electricity and Water sector which grew 6.10 % y / y ; down from 9.60 %. Our view is that 3Q17 growth rate will be gloomy ; weighed down by a protracted electioneering period . The Purchasing Managers Index ( PMI ) indicator averaged 43.67 in 3Q17 from 53.43 in a comparable period in 2016 . The IMF , in its latest World Economic Outlook , has slashed off 30bps off Kenya ’ s growth forecasts to 5.00 %, against a backdrop of economic headwinds .
Shilling eases marginally against greenback
The shilling eased off a marginal 0.34 % against the US dollar in the 15th Sept – 14th Oct review period . The weakening in the local unit was mainly attributed to elevated corporate demand ahead of the fresh presidential polls late October . The US Federal Reserve announced the unwinding down of its USD 4.5Tn balance sheet from this month . Although , US non-farm payroll data hit a record seven-year low of -33,000 , it was mainly shrugged off as an effect of the twin Hurricanes . As the US firms up its normalization course , one policy concern has been the softer pace in inflation growth which came in at 1.90 % in August ; below the 2.0 % Fed target rate . We thus do not anticipate any further rate hike in the remaining Federal Open Market Committee meetings in 2017 .
Subdued 2017 growth prospects
The Statistics agency released 2Q17 growth which showed a y / y slowdown to 5.00 % from 6.30 % in a similar period in 2016 . Agriculture sector , as expected , continued its dismal performance recording 1.40 % y / y growth from 7.10 % in 2Q16 ; due to insufficient long rains experienced in the quarter . Similarly , the manufacturing sector reported subdued performance , declining 300bps y / y to 2.30 %. The
Moody ’ s B1 Rating on downgrade review .
Moody ’ s Investors Service placed Kenya ’ s B1 long-term issuer rating on review for downgrade early October . The downgrade placement was prompted by i ). anticipated higher government indebtedness to surpass 60 % level in June 2018 , ii ). government liquidity pressure risk in the face of rising financing needs and iii ). uncertainties over future direction of economic and fiscal policy . The immediate impact of a rating downgrade will be increased borrowing costs on future foreign debt obligations ; current foreign debt stock stood at KES 2.1Tn ( 51.9 % of total debt stock ) and is expected to widen by KES 1.31Tn by end June 2020 from the latest Budget Review and Outlook paper . In tandem , the ratings agency has also placed the B1 ratings of The Co-operative Bank of Kenya Ltd ( NSE : COOP ), Equity Group Holdings Ltd ( NSE : EQTY ) and KCB Group Holdings Ltd ( NSE : KCB ) on review for downgrade due to the lenders ’ linkage to government paper holdings .
Bears dominate the Equities ’ market .
All major market indices pointed south ; an indicator of poor equities ’ performance in the period
20 | THINK BUSINESS • NOVEMBER 2017