Amana Capital Monthly Newsletter

Published on 2021 | 09 | 13
Kevin Mwangi

Inflation marginally up in August

Year-on-year inflation increased marginally to 6.57% in August from 6.55% in July.The highest year-on-year price increases were witnessed in the Food and Non-Alcoholic Beverages segment and Transport segment which increased by 10.67% and 7.93% respectively.

Brent Crude Oil prices declined by 4.4% in August, which is expected to provide relief in pricing of petroleum products by Energy Regulatory and Petroleum Authority (ERPA) most likely in October. However, due to base effects we expect inflation to remain elevated.

US Fed Chair comments fuels share prices globally

Global Equity Markets shrugged off inflation concerns, Covid-19 Delta Variant spread, supply-chain constraints and labour shortages and posted gains in August. The U.S indices; S&P 500, Nasdaq Composite and Dow Jones Industrials were up by 3.0%, 4.1% and 1.5% respectively. Markets were spurred by Federal Reserve Chairman comments that the Fed will continue to support the economy for as long as is needed to achieve a full recovery.

The Stoxx Europe 600 was up by 1.98% in August, this was its 7th straight month of gains marking the longest winning run in over eight years.

The Shanghai Composite Index (China) recovered by 4.31% in August after declining by 5.39% in July. In July, investors in Chinese equities were rattled by a massive crack down on big tech companies by the government. The Chinese government wants to regain control of technology companies that they deem to have become too big, too powerful and abuse their market share.

The crackdown on tech companies gathered steam in November 2020 when Ant Group Initial Public Offering (IPO), which would have been the biggest IPO in the world, was blocked by Chinese regulators. Ant Group, had been spun off from Alibaba. The crackdown this year later spread to Tencent (internet conglomerate), Meituan (food delivery), Pinduoduo (ecommerce), Didi (ride hailing app) and online private tutoring companies like New Oriental Education and TAL Education which led investors to dump Chinese shares.

Recovering corporate earnings spur activity and prices at the Nairobi Securities Exchange (NSE)

Share prices recorded further gains in August as the NASI, NSE 20 and NSE 25 indices increased by 2.7%, 2.4% and 3.3% respectively.Share price increases amongst the large cap companies was concentrated in the banking sector as the sector recorded significant recovery in earnings. Gains were led by Bank of Kigali Group (37.9%), ABSA Bank Kenya (10.2%) and Equity Group Plc (8.9%). Foreign investors increased their purchases of Kenyan stocks recording a net inflow of USD 15.66 million compared to USD 1.43 million in July.

WPP Scangroup finally releases FY2020 Financial reports

The highlight of the month was the eagerly awaited earnings by WPP Scangroup, the marketing and communication group operating a multi-agency model across multiple disciplines across Sub-Saharan Africa. On February 19, 2021, the board of WPP Scangroup suspended its Chief Executive Officer, Mr Bharat Thakrar and Chief Financial Officer Mr Satyabarata Das to allow for an investigation into allegations of gross misconduct and possible offences. On March 23, 2021, Mr Bharat Thakrar tendered his resignation as CEO and board member.

Since announcing the suspension of its CEO, the stock price declined by 36% between 19th February and 31st August. WPP Scangroup had postponed severally release of its FY 2020 financial report which were due by April 30, 2021. They released their earnings on August 31, 2021. The company reported a loss of KES 1.7 billion in 2020 compared to a profit of KES 159 million in 2019 from its continued operations. The loss was attributed to a 22% decline in revenues as companies cut advertising due to uncertain times caused by the pandemic and an impairment of KES 3.4bn in respect to investments in subsidiaries. The investigations into the gross misconduct and possible offences by the CEO and CFO did not identify items of a material nature that required to the results of the company. However, the auditors qualified the accounts (not a good sign), the reason provided is that there were five foreign investments in which the Group had not accounted for using the appropriate financial reporting standards.

Central Bank announced issuance of an Infrastructure Bond for September Auction

The Central Bank of Kenya announced that the September Primary Bond Auction will be an infrastructure bond, IFB1/2021/21.This is the 3rd issuance of an infrastructure bond in 2021, usually the Central Bank has been issuing only two in a year. Infrastructure bonds are issued to finance government infrastructure projects and they are attractive as their income is exempted from withholding tax.

The issuance of a third infrastructure bond in 2021 is not surprising due to;

    • Liquidity in the money markets have remained elevated as evidenced by open market operations carried out by the Central Bank.
    • The shilling has come under pressure again closing at KES 109.8718 as at 31st August 2021.

Given that infrastructure bonds are usually high in demand, it is expected to reduce the current level of liquidity in the money markets.Infrastructure bonds are usually attractive to yield hungry foreign investors and the expected inflow of dollars is expected to provide support for the shilling.

You can now buy shares using your Safaricom Bonga points

Safaricom has partnered with Nairobi Securities Exchange in a deal where Safaricom customers can redeem their points and in exchange buy shares. Customers will get KES 1 for every 5 loyalty points in the plan Safaricom has been coming up with innovative ways to entice clients to use up their bonga points as they are recorded as a liability in Safaricom’s books.