|Tuesday 29th of November 2016
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Will OPEC bring oil markets back to balance? @TheStarKenya
This week OPEC [which was once feared and could make Western Economies
quake and shake] meets in Vienna on November 30. Who can forget the
glory days of OPEC when the gnome like Sheikh Yamani [Minister of Oil
Petroleum from 1962 to 1986, and a minister in OPEC for 25 years],
prayer beads in hand, would hold the global economy in his thrall with
his every often cryptic pronouncements. Those were the glory go-go
days which were in fact repeated 2010-2014 before the big crash which
has seen Riyadh, Caracas, Luanda, Abuja all enter a tail-spin.
OPEC is seeking to bring the oil markets back into balance [the oil
markets have had an oil surplus for a number of years]. In October,
global oil production was in the order of 80 million barrels per day.
Crude oil in New York closed Friday at $46.11 a barrel giving a
cumulative oil income of $3.608 billion a day [versus $8.80 billion
per day at the price peak of around $110.00 in 2014].
These are very big numbers indeed.
Ryszard Kapuściński wrote in The Shah of Shahs “Oil creates the
illusion of a completely changed life, life without work, life for
free. Oil is a resource that anaesthetises thought, blurs vision,
‘’Oil kindles extraordinary emotions and hopes, since oil is above all
a great temptation. It is the temptation of ease, wealth, strength,
fortune, power. It is a filthy, foul-smelling liquid that squirts
obligingly up into the air and falls back to earth as a rustling
shower of money.
To discover and possess the source of oil is to feel as if, after
wandering long underground, you have suddenly stumbled upon royal
treasure. Not only do you become rich, but you are also visited by the
mystical conviction that some higher power has looked upon you with
the eye of grace and magnanimously elevated you above others, electing
you its favorite.
Many photographs preserve the moment when the first oil spurts from
the well: people jumping for joy, falling into each other’s arms,
The concept of oil expresses perfectly the eternal human dream of
wealth achieved through lucky accident, through a kiss of fortune and
not by sweat, anguish, hard work. In this sense oil is a fairy tale,
and like every fairy tale, a bit of a lie. Oil fills us with such
arrogance that we begin believing we can easily overcome such
unyielding obstacles as time. With oil, the last Shah used to say, I
will create a second America in a generation! He never created it.
Oil, though powerful, has its defects. It does not replace thinking or
Consider that crude oil traded above $90.00 a barrel from October 2010
all the way though to September 2014. From September 2014 it embarked
upon a precipitous drop and traded below $30.00 a barrel in early
The big supply curve ball was in fact the US which pumped an average
of 9.43 million barrels per day in 2015, the highest level since 1972
and +89% since 2008. OPEC’s success is dependent on disciplining its
own members which is a little like herding cats. Then they need
non-OPEC [Russia, for starters] to cap their production. The US and
Canada are not in the conversation and will in fact ramp up production
on any uptick in prices.
“ The challenge is less with OPEC and more with the outer forces we
don’t control,” Emmanuel Ibe Kachikwu, Nigeria’s minister of state for
petroleum, said ursday in an interview in Tokyo. “ The U.S. is
beginning to ramp up volumes again.”
Once the set-piece is over if not before, the markets are going to
appreciate that the salad days are long gone and that these cats who
once strutted the global stage have had their best days and then we
enter the second leg of the down-turn in these economies.
Russia has shown it can withstand the pain. The Kingdom of Saudi
Arabia is going to have to make further painful adjustments and soon
stop-loss a deputy crown prince. Other capitals from Caracas to
Luanda, from Abuja to Muscat are set to enter uncharted territory.
I do not see WTI trading above $60.00 under any circumstances through
2017. Traders can sell $60.00 strike call options with a 1 year
maturity [into a price rally] and pocket the premium.
Crude Oil 5 day Chart INO 46.64
My 3 y/o daughter made her first pun today and I almost cried. She was
eating an apple I asked her if she liked apples she said apple-lutely
Indigo Purple @JoeyPurps Nov 28
Syria: Jihadi Fronts Fall Apart, Egypt Enters The Fight
Law & Politics
Cairo believes that the installation of any kind of Islamist regime in
Syria would endanger Egypt. (Israel could easily transfer Jihadis it
actively supports in the Syrian Golan heights to the Sinai peninsula.)
It also believes that the current Saudi regime will haven fallen apart
due to internal fighting by the end of 2017. It therefore now offers
serious help to Syria to fight its enemies down.
The End is nigh.
Zinc Rises to Highest Since 2007 as Metals Rally on China Demand
The Bloomberg Industrial Metals sub-index posted the biggest five-day
gain since 2011, as zinc touched a nine-year high. Prices rallied
after China’s top economic commission approved a $36 billion plan on
new rail links around Beijing, boosting demand for industrial raw
Zinc for delivery in three months rose 2.9 percent to settle at $2,900
a metric ton at 5:50 p.m. on the London Metal Exchange, after touching
$2,985, the highest since October 2007.
The metal’s volatility, measured in price swings in options, is at the
highest since 2010.
Lead is up 18 percent since Nov. 18, the biggest six-day advance since
On the Shanghai Futures Exchange, both zinc and lead closed limit up.
Zinc, used as a coating on iron and steel to protect against
corrosion, is the best performer among 22 raw materials on the
Bloomberg Commodity Index this year, with the metal rallying 80
percent this year, poised for the steepest climb since 2009. The metal
will be in deficit through 2018, Bloomberg Intelligence analysts
Kenneth Hoffman and Zhuo Zhang wrote in a note Monday.
“There seems to be no stopping the juggernaut we are seeing in the LME
metals, a move that is not being replicated in the commodity space
with the exception of coal and the ferrous group, ” Edward Meir, an
analyst for INTL FCStone Inc. in New York, said in a note.
Copper for delivery in three months rose less than 0.1 percent to
$5,881, and broke above $6,000 during the Asian trading day on Monday,
bringing call contracts at that price into the money.
“Copper is moving too fast,” said Christoph Eibl, chief executive
officer and co-founder of Tiberius Asset Management, which oversees
about $700 million. “It’s not being driven by fundamentals. It’s
moving on speculative interest and short-covering in the options
“It’s like being in a bush fire and trying to buy fire insurance,”
Wolf said. “You have to take any price you can get.”
Bond notes hold value on black market -- for now Reuters
"For now it is the same rate whether it's bond or U.S. dollar, my
brother. We will see in the next few days whether it changes," said
Tatenda, a currency tout who declined to give his surname.
His business card, which gave only his first name and mobile number,
summed up the lot of most of Zimbabwe's 13 million people since the
multi-billion percent inflation of eight years ago wiped out the
"Hustlers for life, if you can't beat them, join them," the card read.
"Money don't change us, but we are money changers."
Zimbabwe launches parallel currency to tackle cash crunch FT
Some banks began issuing the notes on Monday. At the capital Harare,
customers in one bank were offered a maximum withdrawal of $200, of
which $150 was in cash and the balance in bond notes.
“I paid dollars into my account and the bank is now forcing me to take
bond notes,” one angry customer complained. “My money is being
converted illegally from dollars to local notes which can only be used
in this country.”
A bank teller said most customers were taking the notes but some had
refused them. One of the country’s largest supermarket groups refused
to accept them, with till operators saying they were awaiting
instructions from their head office.
Lengthy queues formed outside banks across Zimbabwe on Saturday
following the RBZ announcement as depositors sought to withdraw
dollars before they became, in the words of one banker, “contaminated”
by the notes.
“It is Gresham’s Law at work — bad money is driving out good,” the banker said.
Levels of cash held by banks fell to $92m at the end of September,
down from $255m a year earlier. Bankers say cash holdings have
declined since then, leading to increasingly tight curbs on
withdrawals, with average daily limits of $50 to $100 a day at most
Nigeria's Economy Needs Visionary Leadership via @BV
Africa and the world cannot afford a failing economy in the
continent’s most populous nation. Yet that is exactly what Nigeria
might be getting: Its economy is on track to shrink by 1.7 percent
this year, the official unemployment rate has more than doubled over
the last two years, and inflation is at an 11-year high.
One concrete step President Muhammadu Buhari could take to address the
crisis would be to eliminate the country’s disastrous foreign exchange
controls. Instead, Buhari has made no secret of his desire to defend
And the central bank has mostly gone along. Despite allowing the
devaluation of the naira in June, it is continuing to manipulate the
exchange rate -- discouraging foreign investors, creating a crippling
shortage of dollars for businesses that need to import, and feeding a
currency black market. To keep down the street price of vanishing
dollars, Buhari’s government has arrested informal money-changers.
More capital controls are in the works.
Buhari’s election and pledges of good governance rightfully raised
expectations across Africa. To fulfill those hopes, however, he will
have to demonstrate more flexibility.
Kenya cenbank holds benchmark lending rate at 10.0 percent Reuters
The economy is also performing strongly, with 6.2 percent growth in
the second quarter of 2016, it said in a statement.
The government sees Kenya's economic growth slowing to just over 6
percent next year, down from an initial forecast of 6.5 percent,
mainly because of slowing private-sector credit growth.
"The slower (credit) growth witnessed over the last several months was
found to be largely an outcome of structural factors in the banking
sector rather than monetary policy," Monday's statement said. "However
there is no evidence that this is having a negative impact on economic
A law that came into effect in mid-September capped commercial loan
rates at 400 basis points above the benchmark rate. Banks strongly
opposed the law, saying they needed high interest income to offset the
risks of lending.
The bank said there was not enough data yet to draw conclusions about
the law's effects, but noted that private sector credit growth had
stabilised at 4.6 percent in October, and that banking system
liquidity had also stabilised.
Clothes Exports to U.S. Fuel Kenya Plans for Cotton Revival
Kenya plans to revive its cotton industry, a major foreign-exchange
earner until the 1980s, amid strong demand for lint from domestic
mills and the potential to supply manufacturers exporting clothing and
textiles to the U.S. under a preferential trade deal.
The government is planning training and credit facilities for farmers
as part of a bid to restore production that peaked at 38,000 metric
tons of seed cotton in 1984-85. Kenya currently produces 15,700 tons
of seed cotton, creating about 5,240 tons of lint. Demand for the
latter is about 37,000 tons, with the shortfall imported from
neighboring countries, according to Fanuel Lubanga, a development
manager at the state-run Agriculture and Food Authority.
The initiative comes as manufacturers in East Africa’s biggest economy
are counting on apparel exports to the U.S. growing 5 percent this
year after the U.S. extended its African Growth and Opportunity Act,
or AGOA, by a decade.
East Africa could potentially export garments valued at as much as $3
billion annually by 2025, according to a 2015 McKinsey report.
Affordable electricity and cheap labor -- with monthly salaries as low
as $60 -- make producers such as Kenya and Ethiopia attractive to
investors, the study shows.
Kenya exported clothing valued at $380 million in 2015, with companies
including Puma SE, Wal-Mart Stores Inc., JC Penny Co. and Hennes &
Mauritz AB among those who source garments from Kenyan Export
Processing Zones, which employ more than 66,000 people.
Mauritius firms splurge Sh5bn on Kenyan companies in one year
Financial services group SBM Holdings’ intended acquisition of
Fidelity Bank for an estimated at Sh2.7 billion is so far the
single-biggest publicly announced deal.
Mauritian fund manager Axis acquired Kenyan stockbroker ApexAfrica
Capital for Sh470 million last year, making it the highest priced
takeover of a market intermediary in East Africa. Xterra Capital
Advisors, a fund management firm domiciled in Mauritius, is in the
process of raising cash to construct a high-end, mixed-use real estate
in Nairobi at a cost of Sh1.4 billion.
Mauritius’ largest sugar miller Alteo Limited, through its subsidiary
firm, Sucriere Des Mascareignes Limited (SML) acquired a 51 per cent
stake in Kenya’s Transmara Sugar Company in a multi-million shilling
deal that was, however, not made public.
“Mauritius has positioned itself as a gateway into Africa -they have
executed the most double taxation treaties with African countries -
and in particular for the Indian subcontinent. What we are seeing is
surely correlated to destination East Africa which is now top of
investors’ radar,” said Aly-Khan Satchu the chief executive of Rich
The Big Set Piece Event in the financial Markets this week will be the
OPEC meet in Vienna. The Glory days when these Folks strutted the
International Stage are long gone.
I do not expect Crude Oil to trade above $60.00 through 2017. WTI
Crude was last trading at $46.37 a barrel.
The MPC maintained the Central Bank Rate at 10.0% The Central Bank
said the following in its accompanying announcement.
''The Central Bank's foreign exchange reserves stand at USD 7.305b
equivalent to 4.8 months of import cover, coupled with the USD 1.5b
precautionary facility from the IMF to provide the Central Bank with
sufficient buffers against any short term shocks.
The private sector credit growth was at 4.6% in October 2016, largely
due to structural factors affecting the banking sector. The economy
grew 6.2% in 2Q16, compared to 5.9% over the same period in 2015''
The Nairobi All Share closed -0.29 points at a fresh 4 week low of 136.55.
The Nairobi NSE20 Index firmed +6.95 points to close at 3256.57.
Equity Turnover clocked 545.359m.
N.S.E Equities - Agricultural
Pockets of strength were seen in the Agri Segment of the market.
Kakuzi traded 49,500 shares all at 320.00 +3.9%. Kakuzi has surged
+21.67% in November and closed at a 5 month high. Kakuzi is +0.94% on
a Total Return Basis through 2016.
Sasini Tea and Coffee was up-ticked +8.56% to close at 19.65 and
traded 16,700 shares.
N.S.E Equities - Commercial & Services
Safaricom was the most actively traded share at the Exchange today and
closed unchanged at 19.85 with 14.562m shares worth 289.051m and some
52.99% of the total volume traded during todays trading session.
Safaricom sits +30.61% on a Total Return basis in 2016 and has
outperformed the All Share by 3,700 basis points and as such is a Bull
Outlier as it has been for a number of years.
Kenya Airways ticked -0.75% lower to close at 6.55 and traded 902,100
shares. Chairman Michael Joseph has moved with speed, precision and
purpose and there is surely more to go on the price into year End.
Kenya Airways is +33.67% through 2016.
N.S.E Equities - Finance & Investment
Standard Chartered Kenya reported Q3 16 Earnings pre-market opening,
where Q3 EPS accelerated +24.5%. The Cost to Income Ratio improved an
eye-popping 330 basis points to 40.1%. StanChart's holdings of
Government securities surged +55.1% versus a Year ago. Foreign
exchange income clocked 2.2b (+29.9% y/y) and there was a +77.7% y/y
increase in other income. StanChart has been a big Beneficiary of the
Flight to Quality and Customer deposits were just shy of 200b.
StanChart rallied +1.604% to close at 190.00 on light trading of 3,300
shares. Buyers outpaced Sellers by more than 1,000%. StanChart is in
fact the only banking counter at the Securities Exchange which has
delivered a positive return and is +18.97% on a Total return basis in
2016 and these results affirm the share price action. The Price has
plenty of scope to the upside and given that it it tightly held
[73.89% of the shares are held by the Parent StanChart PLC] Investors
have to be patient and this is as good a price point as any to
accumulate the share.
Equity closed unchanged at 30.00 and traded 2.052m shares worth 62.072m.
Barclays Bank firmed +1.12% to close at 9.00 and traded 149,000 shares
the day after holding is Barclays Africa Forum here in Nairobi.
Barclays Africa Deputy CEO Peter Maltare said "we have seen this kind
of turbulence before" and that Barclays Africa's key competitive
advantage was its embedded connectivity across the continent. The CEO
Barclays Kenya Jeremy Awori cited FX as a key competency.
N.S.E Equities - Industrial & Allied
KenolKobil rebounded +1.569% to close at 14.95 and traded 1.670m
shares. KenolKobil had corrected -6.69% yesterday off a 2016 closing
High. KenolKobil is +59.89% on a Total Return Basis and has been a
stand-out performer at the Securities Exchange in 2016. KenolKobil
trades on a Trailing PE of 10.91. The price Action is signalling
EABL retreated -2.35% to close at a 10 week low of 249.00 and traded
441,400 shares worth 109.964m. EABL was, however, trading at 260.00
+1.96% session highs at the closing bell signalling it might be
girding for a rebound from an oversold position.
BOC firmed +5.88% to close at 90.00 and traded 7,000 shares.