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