Investment updates Quarter 1 2017

Economic growth – The Kenya Economy grew by 5.8% in 2016 compared to 5.7% in 2015, according to data from the Kenya National Bureau of Statistics (KNBS). The growth was mainly driven by growth in the tourism, information & communication, real estate as well as transport and storage sectors. Decline in growth were recorded in the agriculture, manufacturing and financial services sectors.

Inflation Review – Inflation for the month of March 2017 stood at 10.28% which surpassed the Central Bank’s target range of between 2.5%- 7.5%. The increase was attributed to sharp increase in food prices due to the prevailing drought in some parts of the country, energy cost and the continued depressed growth of private sector credit. The annual average inflation for the period ending 31st March 2017 stood at 6.74%.

Interest rates – The Treasury Bills yield remained slightly unchanged during the quarter closing at 8.8%, 10.5% and 10.9% from the previous quarter rates of 8.6%, 10.5% and 11.0% for the 91, 182 and 364 day papers respectively. The bond yield curve had minimal shifts in Q1 2017 with investors’ appetite for government securities, especially on the short to medium term tenors remaining high.

Foreign Exchange – The Kenyan Shilling depreciated against the US Dollar by 0.5% during the quarter to close at Kshs.103.0 per dollar from Kshs 102.5 per dollar at the end of the year 2016, due to global strengthening of the dollar as the US continues on its monetary tightening cycle. During the period also the Kenyan Shilling depreciated against the Euro, Sterling Pound and South African Rand by 3.27%, 2.72% and 8.33% respectively.

Capital Markets – First quarter of 2017 saw a downward trend with NASI, NSE 20 and NSE 25 losing 2.1%, 2.3% and 1.7%, respectively as a result of decline in large cap prices. Most companies recorded weak earnings in the last quarter of 2016, due to the tough operating environment in 2016 with majority of banks and insurance companies recording weak earnings growth for 2016.

DB Fund Performance
The DB Fund closed at fund value of 18.45 billion in quarter one 2017 from Kshs. 18.70 billion in quarter four 2016. The drop is majorly attributed to payments of benefits to members who retired during the year. The Fund registered a performance of 0.4% in quarter one 2017 with an overall Fund’s performance of 8.4% for 12 months ended 31st March 2017. This was due to poor performance in the capital market.

The graph below shows Fund’s growth

The Kenya economy growth is projected to decelerate to 5.5% from an earlier forecast of 6.1% according to the World Bank’s Kenya Economic Update. This is attributed to the ongoing drought and poor rains which have led increase in food and energy prices. Secondly, the slowdown in credit growth in the private sector and rise in global oil prices having a dampening effect to the Kenya’s economic activities.