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Recent Topicals

Investment Options in the Kenyan Market

Jul 28, 2019

Following the launch of the Derivatives Market in Kenya at the Nairobi Securities Exchange (NSE) on July 11th, 2019 (see our Topical here), investors have a new investment avenue in the Kenyan market, which is expected to diversify the existing product offering. In light of this development, it is important to examine the current investment options in the Kenyan market. This week we focus on the investment options in the Kenyan market, where we shall discuss the following: Overview of Investments, Categories of Investment Products in the Kenyan Market, and, Conclusion: We give considerations an investor should take into account before choosing an investment option, highlighting the returns for the different asset classes as well as the inherent risks. After this discussion, we shall follow up with a note on financi...

Impact of Proposed Budget Changes to Pensions Industry

Jul 21, 2019

A report done by the World Bank in 2018 shows that Kenya’s population is aging and the number of the elderly as a percentage of the population is expected to hit 7% by 2050, from the current 3%. This is as a result of an improvement in life expectancy from an average of 49 years in 2006, to 59 years in 2016, and 64 years in 2018. The reducing birthrate has not helped as we have seen the average number of children per family fall sharply, from 8.1 children in 1978 to 4.6 children in 2008, and it is projected to possibly reach 2.4 children by 2050. These changing demographic trends reinforce the need to ensure that some form of old age protection is provided to the elderly and ensure security against destitution during old age. This note will review the regulatory changes that the Retirement Benefits Authority has enforced over the years to ensure continuous improvement in the Retirement Benefits Industry; as such, we will cover; Role of the Ret...

Cytonn Note on the Monetary Policy Committee (MPC) Meeting for July 2019

Jul 17, 2019

The Monetary Policy Committee (MPC) is set to meet on Wednesday, 24th July 2019, to review the prevailing macro-economic conditions and make a decision on the direction of the Central Bank Rate (CBR). In their previous meeting held on 27th May 2019, the MPC maintained the CBR at 9.0%, citing that the economy was operating close to its potential and inflation expectations remained anchored within the target range, despite the possible spill overs of the food and fuel price increases, thus the prevailing monetary policy stance remained appropriate. This was in line with our expectations as per our MPC Note, informed by the country’s macroeconomic fundamentals, which had remained stable as well as sustained optimism on the economic growth prospects, as evidenced by: Inflation expectations, which had remained within the target range of 2.5%-7.5%, desp...

Nairobi Metropolitan Area (NMA) Residential Report 2018/2019

Jul 14, 2019

This week, we look at performance in the residential sector over the 2018/2019 period, as we update the findings of the Nairobi Metropolitan Area Residential Report 2017/2018, which we released in July 2018. According to the report, residential sector in 2017/2018 registered an average return to investors of 8.2% (price appreciation and rental yields of 2.8% and 5.4%, respectively), which was 1.2% points lower than 9.4% in 2016/2017 (rental yields and capital appreciation of 5.6% and 3.8%, respectively). The decline in performance was attributed to a tough macroeconomic environment characterized by relatively low private sector credit growth, and the spillover effects of the protracted 2017 political elections. This year, we update the findings of the 2017/2018 report by looking at the residential market performance in 2018/2019 covering 41 markets across the Nairobi Metropolitan...

Understanding the Derivatives Market

Jul 7, 2019

The Nairobi derivatives market began trading on Thursday 4th July 2019, with the purchase of three single stock futures contracts. This follows the successful completion of a six-month Derivatives Exchange Pilot Test between July and December 2018. This venture will make the Nairobi Securities Exchange (NSE) the second exchange in Sub-Saharan Africa to introduce derivatives trading after the Johannesburg Stock Exchange (JSE) in South Africa. In this week’s note, we shall discuss financial derivatives, highlighting the following: Background of Financial Derivatives, Nairobi Securities Exchange Derivatives Market (NEXT), African Case Study: South Africa’s Derivatives Market, and, Our Views, Expectations, and Conclusion. Section I: Background of Financial Derivatives A derivative is a financial contract whose value is derived/re...