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Satchu's Rich Wrap-Up
Monday 19th of September 2016

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Macro Thoughts

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and you guys thought it was a boring... Yuan O/N Interbank Rate spikes to highest since January via @justinaknope David Ingles @DavidInglesTV

The yuan’s overnight interbank rate in Hong Kong jumped 15.7
percentage points to 23.7 percent, its second-biggest gain on record.
One- and three-month funding costs also rose, though by smaller
increments. The moves make it more expensive to bet against China’s

Home Thoughts

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Introducing Nairobi Lonely Planet

Telling people that you like Nairobi is like voicing a guilty secret.
Yes, Nairobi’s reputation precedes it. And yes, it's a city where it
pays to keep your wits about you. But there are many people who don't
just like Nairobi but who wouldn't want to live anywhere else. For
those who call it home, the city's muscular, cosmopolitan charms
include a vibrant cultural life, fabulous places to eat and exciting
nightlife. If you're just passing through, this melting pot of people
and attractions has the intriguing National Museum, an unlikely
national park (black rhinos and all), an irresistible elephant
orphanage, the ground zero for the Rothschild’s giraffe, Karen
Blixen's former home and so much more. Welcome to one of Africa's most
dynamic cities, a place you'll almost certainly pass through and one
that you could just learn to like if you give it half a chance.

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19-SEP-2016 :: Markets May be Caught off Guard if Fed Hikes Rate this Week @TheStarKenya
Law & Politics

The world is just so fluid and fast moving and since Brexit it seems
never have so many got it so wrong. Nate Silver, the US Pollster
ranked Donald Trump’s chances of being the next President of the
United States at 34.4 per cent. Now the first thing to observe is that
this is a two-horse race.  The second thing to observe is that ‘event’
risk surely favours Trump. Over the weekend a deafening explosion
rocked New York, injuring 29 people, blowing out scores of windows and
forcing the evacuation of at least two buildings.  The blast went off
in a 4-by-4-by-3-foot construction dumpster outside the Townhouse Inn
of Chelsea at 131 W. 23d St reported  the New York Post. this time,
the narrative behind the explosion did not cross the threshold. Just
imagine a situation a few days before the vote, where the narrative
crosses the threshold. In a tightly fought race, such an ‘event’ is
going to move the dial big time in Trump’s favour, probably move the
dial significantly further than Nigel Farage’s poster showing a queue
of migrants and refugees moved the dial in favour of Brexit. Its all
about turnout (something Gabon’s President Ali Bongo Ondimba worked
out a while back - Bongo’s stronghold Haut-Ogooue province clocked a a
99.93 per cent turnout versus a countrywide average of less than 50
per cent, with 95 per cent voting in favour of Bongo). If Trump can
turn on and turn out his base and Hillary can’t, then this is a
toss-up. Now where will the world be in the event of a President
Trump? Who really knows or can predict that? 34.4 per cent seems to be
a trading buy. As of last week, investors owned the biggest long
position in the VIX ever (the Chicago Board Options Exchange
Volatility Index reflects a market estimate of future volatility).

Now lets just go back to the G20 and the extraordinary situation where
President Obama had to exit his plane from the rear and without a red
carpet.  is was not a mistake. this was deliberate.

Of course, President Obama could teach Sun Tzu to the Chinese and he
did when he said: “I wouldn’t over crank the significance of it, we’ve
got a lot of planes and helicopters and a lot of cars and a lot of
guys and, you know, if you’re a host country, sometimes it may feel a
little bit much.”

What we know is that President Xi Jinping is hard-edged and this
diplomatic snub caught on the 24 hours News loops was the equivalent
of being slashed with a knife in broad day light.

 The Asia Times carried a report last week which speculated China may
seize Scarborough Shoal during the final weeks of the US presidential
election as America’s gaze turns inward.

“If China is going to strike in the South China Sea, mid- September
right until the November presidential election could not be a better
time,” explained a senior US Department of Defence official who agreed
to be interviewed but not identified. Or, put in a different way,
another US defence official, again speaking on background, explained:
“Beijing’s best window to take advantage of certain trend lines and
cement its claims in the South China Sea is right after the G20.
American newspapers won’t give front-page status to a China story
during the heart of the election, well, unless they start shooting,
and they won’t be that stupid. For Beijing, the timing is perfect.”

If Xi Jinping is seriously ready to make this a ‘’Put Up or Shut Up’’
moment for the US in the Pacific in what is considered a ‘’lame-duck’’
period for a US President, then we are in for a very interesting
moment, a moment of possibly enormous geopolitical volatility.

The Fed meets this week.  e market has a September rate hike of 25
basis points priced at less than 20 per cent and just one rate hike
before year end priced marginally below 50 per cent. Its been a
groundhog day with the Fed who have barked endlessly but have done
little else. A September rate strike would catch the markets

With so many curve balls out there Paul Virilio’s ‘Wealth is the
hidden side of speed and speed the hidden side of wealth’, is
something to ponder.

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Japan's Pivot to Africa Foreign Affairs
Law & Politics

Under Prime Minister Shinzo Abe, Japan has been looking to boost its
global standing. In that effort, the country’s relationships with
African states have become key. The most recent signs of Tokyo’s pivot
to the continent came in late August, when Abe travelled to Kenya to
attend the Sixth Tokyo International Conference on African Development
(TICAD), a meeting convened by Japan, 54 African states, and several
international organizations. At the conference, Abe pledged more than
$30 billion in Japanese investment to infrastructure projects across
the continent over the next three years—the largest such commitment in
TICAD’s history.

Abe’s investment pledge reflected a broader shift in Japan’s policy in
Africa: from aid to trade and from government to the private sector.
Last month’s TICAD was not short of symbolism to this effect. The
meeting was the first of its kind held in Africa instead of in Japan,
and Abe, whose public remarks painted his country as an economic
partner rather than a donor, brought more than a hundred Japanese
businesspeople along for the conference.

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Law & Politics

The Japanese Prime Minister pledged $30b over the next 3 Years and said

"Throughout the Continent I cannot but think we are witnessing a
"quantum leap"''

"This is an investment that has faith in Africa's future," he said.

"Let us advance together, Africa and Japan...The Future abounds with
blazes of bright colours"

Japan, of course, trails China which recorded total trade with Africa
of about $179 billion in 2015 versus Japan's approximately $24 billion
and given the level of geopolitical contestation between the two, a
lot of commentary tends to be seen through that prism of geopolitical
competition. Japan does not need to compete in every country in Africa
because for China the votes at the UN are critical whereas for Japan
UN votes does not carry the same import. So I expect Japan to pick its
African Spots. And if you think about it The Indian Ocean is an
appendage of the South China Sea.

"Japan bears the responsibility of fostering the confluence of the
Pacific and Indian Oceans" said the Prime Minister.

So I do foresee Japan [alongside the US and India] seeking to contain
and triangulate China in the Indian Ocean.

Another issue post Fukushima is Japan's Energy Security. Here too I
expect Japan to seek a serious Foothold in the nascent East African
Energy supplies which run from Mozambique through Tanzania up to Kenya
and inland. Japan's Energy Security is a key Issue. Interestingly if
you look at the Japanese Investments, there are concentrated in
Energy, Ports, logistics, and what I would call choke-points.

What I have found is that once Japan Inc makes the decision [and it
can be frustrating getting to that Decision Point] then They are all

The President of the World Bank Jim Yong Kim said that his message to
investors at #TICAD6 is ''get in on the deal now invest in Africa''

The Japanese have in my opinion made the decision to get in the deal
now. That can only be a good thing for Africa.

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Currency Markets at a Glance WSJ
World Currencies

Euro 1.1168
Dollar Index 95.89 The Bloomberg Dollar Spot Index fell 0.3 percent
following a 0.7 percent advance on Friday, when data showed the U.S.
consumer-price index climbed 0.2 percent after being little changed in
Japan Yen 102.09
Swiss Franc 0.9789
Pound 1.3039
Aussie 0.7531
India Rupee 66.885
South Korea Won 1118.54
Brazil Real 3.2652
Egypt Pound 8.9254
South Africa Rand 14.1345

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Global Investors Bet $7.3 Billion on Australia's Busiest Port
International Trade

A group of global investors including QIC Ltd. agreed to pay A$9.7
billion ($7.3 billion) to run Australia’s busiest maritime hub for 50
years, betting on steady income from the port’s daily stream of
containers and new cars.

QIC teamed up with Australia’s sovereign wealth fund the Future Fund,
Global Infrastructure Partners and Canadian pension manager Omers to
run the Port of Melbourne, the group said in a statement Monday. The
port handles about 2.6 million containers annually and more than 1,000
vehicles a day.

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Gold 6 month INO 1315.00 [1304 IS KEY]

West Texas Intermediate crude added 1.8 percent to $43.81 a barrel,
following a 6.2 percent slide last week.

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Crude Oil chart via Aurelija Augulyte

Figure 3. Oil - support here, or around USD 44/bbl

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It appears only around a dozen heads of state from the 120-nation Non-Aligned Movement made it to the meeting held on the Caribbean island of Margarita
Emerging Markets

Authorities did not supply a list of attendees. Maduro, hit by low
popularity amid a deep economic crisis, hailed the meeting as a

"This summit, we can say, has been a total success, a victory of
Bolivarian diplomacy," Maduro told a news conference minutes after
closing the six-day event, referring to Simon Bolivar, Latin American
independence hero and idol of the socialist revolution in Venezuela.

The movement was formed in 1961 by nations wanting to avoid aligning
with the United States or Soviet Union though has dwindled in
relevance over the years.

The most high-profile heads of states in attendance at Margarita were
Mugabe, Cuba's Raul Castro, and Iran's Hassan Rouhani, who passed on
the presidency of the group to Venezuela on Saturday.

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25-JUL-2016 Countries like Zimbabwe feel like they are right at the Edge that Hunter S. Thompson described

“The Edge...There is no honest way to explain it because the only
people who really know where it is are the ones who have gone over''

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South Africa All Share Bloomberg +2.25% 2016

Dollar versus Rand 6 Month Chart INO 14.1345


Egypt EGX30 Bloomberg +12.99% 2016


President @MBuhari arrives New York ahead of his participation at
71st Session of the UN General Assembly #UNGA71 Presidency Nigeria


S&P lowers Nigeria's credit rating to B from B+ Jamie McGeever ‏@ReutersJamie


The annual inflation rate in Africa’s most populous country
increased to 17.6 percent from 17.1 percent in July, the Abuja-based
National Bureau of Statistics said in an e-mailed statement Friday.


Nigeria All Share Bloomberg -2.74% 2016


Ghana Stock Exchange Composite Index Bloomberg -10.52% 2016


Yields on Zambia’s 2024 dollar bonds dropped 6 basis points to
8.97 percent by 12:50 p.m. in Lusaka, the capital, from as high as
16.3 percent in January.


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Currencies to Politics Bedevil African Central Banks' Rates Task

“Internal dynamics, I think, will influence the monetary policy
direction more so than what’s happening externally,” Yvonne Mhango, a
sub-Saharan Africa economist at Renaissance Capital Ltd. in
Johannesburg, said by phone. “Currency movements will be significant.”

“Nigeria’s central bank is in a tough place. Growth dynamics in the
economy are at multi-decade lows,” Raza Agha, chief economist for
Middle East and Africa at VTB Capital in London, said in an e-mailed
response to questions. With the naira still under pressure “we expect
the central bank to raise rates.”

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Banks' rising appetite for risk-free securities hands Treasury cheaper credit @BD_Africa
Kenyan Economy

The 91-day Treasury bill (T-bill) which is currently trading below its
five-year average of 10.4 per cent was trading at 8.087 per cent while
the 182 day T- bill sold at 10.812 last week.

Analysts say market-driven sentiments as banks shy away from lending
to the more risky private sector is handing the Treasury cheap credit.

“It was entirely predictable and predicted that banks would rush to
the safety of ‘risk-free’ assets. The flight to quality has been a
major part of the narrative for quite a while now. The rate cap Act
has further accelerated this trend,” CEO of investment advisory firm
Rich Management Ltd Aly-Khan Satchu said.

Treasury bills subscriptions increased during the month of August,
with overall subscriptions coming in at 144.1 per cent compared to
95.5 per cent in July before the rate cap legislation was signed into

Yields on 182-day and 364-day T-bills were then on the rise closing
the month at 11.1 per cent and 11.5 per cent, from 10.5 per cent and
11.4 per cent respectively at the end of July.

The increase in yields during the month was on account of government
borrowing given the new fiscal year.

“However, at the tail end of the month, yields declined by 35 bps, 6
bps and 48 bps for the 91-day, 182-day and 364-day papers following
the enactment of The Banking Act (Amendment) Bill, 2015, which is
likely to lead to more demand for government securities in the medium
term,” Cytonn Investments said in its weekly bulletin.

Regional economist East Africa at CfC Stanbic Bank Jibran Qureishi,
said although treasury bills are trending downwards they may not cross
the seven per cent mark given the cap on deposit rates.

“They will not fall below 7.35 per cent in the short end of the curve
because if the cost of funding is the seven per cent no one will bid
below that,” he said.

Mr Qureishi said the current scenario is only driven by market
knee-jerk reaction to the interest rates law and is likely to
dissipate in the coming two to three months when the fundamentals kick

“The sentiment will go down and the market will be looking at the
government — if it will be able to secure external funding for the
budget, the timing of this funding and the expansionary fiscal policy,
on which I believe this budget is very big,” he said.

Deepak Dave of Riverside Capital said in the short term the law will
push down development costs. The problem will arise if the Treasury
fails to keep fiscal deficit under control in an election year. With a
higher debt and deficit servicing costs will jump.

Analysts agree that the falling rates will impact on bonds as banks
struggle to lock in high rates. The Central Bank of Kenya recently
offered five-year and 20-year Treasury Bonds for a total amount of
Sh30 billion at 14.069 per cent and 14.836 per cent.

“Yes I think we will also see Investors lengthening duration
[particularly where yields are above the Cap],” Mr Satchu said.

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Kenya Shilling versus The Dollar Live ForexPros
Kenyan Economy

Nairobi All Share Bloomberg -9.69% 2016


131.58 -0.05 -0.04%

Nairobi ^NSE20 Bloomberg -20.66% 2016 [3,116.82 30th August was a
multi-year Low]


3,206.12 -33.68 -1.04%

Every Listed Share can be interrogated here


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N.S.E Today

The Central Bank of Kenya’s (CBK) Monetary Policy Committee (MPC)
meets Tuesday for the first time since the Interest Rate Capping Bill
was signed into Law.
The International Monetary Fund (IMF) Furusawa said in Nairobi last week

“Linking deposit and lending rates to the central bank’s policy rate
may compromise the independence of the central bank, and hamper its
ability to enact monetary policy towards achieving its main
objectives, that is to maintain price and financial stability and to
support the economy,”

Mitsuhiro Furusawa warned that the “politicization of monetary policy”
bears risks for a sound financial system and for credit access,
especially to risky borrowers.

“These would include…inefficiencies in the credit market… and
undermining the effectiveness of monetary policy transmission,” said
Citi Global Markets.

The Citi analysts said the Kenyan situation called for a change in
banking models because the extent of the rate cap was more draconian
than in other countries where such restrictions have been put in

The Bourse started on a positive note with The Nairobi All Share
rallied +0.66 points to close at 132.24.
The Nairobi NSE20 firmed +12.76 points to close at 3218.88.
Equity Turnover was subdued at 283.719m.

N.S.E Equities - Commercial & Services

Safaricom firmed +0.539% to regain the 19.00 level and traded 2.168m
shares worth 41.237m. I have a Year End Price Target of 22.50 which is
an +18.42% through Year-End.

Uchumi rebounded +7.575% to close at 3.55 and traded 18,900 shares.
Buyers outpaced Sellers by a Ratio of 9 to 1.

N.S.E Equities - Finance & Investment

CFC Standard Bank eased -2.53% to close at 77.00 and traded heavy
volume [versus its moving average] of 1.232m shares worth 94.865m. CFC
Standard Bank has bucked the downdraft that has engulfed banking
stocks in 2016 and is in fact +2.024% on a Total Return Basis in 2016.
CFC Standard Bank reported a +21.976% acceleration in H116 but that
was before the Interest Rate Bill was signed into Law.
KCB Group rebounded +0.95% to close at 26.00 and traded 570,300 shares.
Equity Group which carved out an aggressive posture last week [taking
the battle to the likes of M-Shwari] closed unchanged at 25.50 and
traded 1.257m shares.

The Stanlib Fahari I-Reit rallied a further +5.33% to close at 14.80.
Stanlib Fahari I-Reit has rallied +34.54% this month but remains
-32.72% Year To Date.

N.S.E Equities - Industrial & Allied

EABL rallied +3.54% to close at a 6 week high of 263.00 EABL traded
50,100 shares. EABL was caught up in the banking downdraft and still
has more head-room.

ARM which is surely a big beneficiary of the Interest rate Cap, firmed
+1.96% to close at 26.00 and traded 602,100 shares.

by Aly Khan Satchu (www.rich.co.ke)
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September 2016

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