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2024 Economic Trends and 2025 Outlook · The Mwango Capital Podcast

0:00
SPEAKER_03: Thank you so much,
0:00
SPEAKER_03: all of you,
0:01
for joining us on this first Twitter Spaces of 2025 on market
0:05
trends in 2024 and a
0:06
SPEAKER_03: little bit of analysis on Outlook on 2025 from three able speakers.
0:10
SPEAKER_03: The fourth one was unfortunately not able to join us.
0:12
He's on a different time zone,
0:14
I think eight hours behind Kenya,
0:16
and he had a work arrangement.
0:18
SPEAKER_03: So he's already able to join us.
0:20
SPEAKER_03: That's David from Moody's.
0:21
SPEAKER_03: He will be able to join us in future conversations.
0:23
SPEAKER_03: But you still have very good speakers today.
0:25
SPEAKER_03: We have Stephanie, we have Hari, and we have Sunil.
0:28
SPEAKER_03: I'll get started by asking them to introduce themselves,
0:31
SPEAKER_03: tell us a bit about themselves and how the year started,
0:33
SPEAKER_03: and then we'll get started on the conversation.
0:35
SPEAKER_03: So I'll start with Stephanie, and then we'll go to Hari and then Sunil.
0:38
SPEAKER_03: Stephanie?
0:39
SPEAKER_03: Thank you.
0:39
SPEAKER_03: Happy New Year.
0:40
SPEAKER_03: I think it's not too late to say that,
0:42
SPEAKER_03: but yes,
0:42
SPEAKER_03: Happy New Year to everyone,
0:44
SPEAKER_03: and I'm glad to be on these spaces.
0:46
SPEAKER_03: So my name is Stephanie Kimani.
0:47
SPEAKER_03: I'm an economist by profession as well as a strategist with over 10 years
0:51
SPEAKER_03: experience on both fronts.
0:53
SPEAKER_03: And I'm very passionate about the Kenyan economy,
0:56
trying to figure out how to improve the economy and just take
1:00
us forward and to
1:01
SPEAKER_03: greater heights.
1:02
So I'm glad to be on the spaces and hope to also gain insights
1:06
from the rest of the speakers.
1:07
SPEAKER_03: Thanks.
1:08
SPEAKER_03: Howie, over to you.
1:10
SPEAKER_01: Hello, everyone.
1:11
SPEAKER_01: My name is Howie Abwonji.
1:13
SPEAKER_01: I'm a research analyst at Avocap and specializing in macro analysis,
1:18
SPEAKER_01: both local and global markets.
1:20
SPEAKER_03: On that note, you can tell us a bit about Avocap before we get started.
1:23
SPEAKER_01: Avocap is a CMA licensed fund manager operating in Kenya.
1:28
We have a suite of products,
1:30
both focused on the local bond markets,
1:33
stock markets,
1:34
SPEAKER_01: We also do focus on the African equities as well as global equities.
1:39
SPEAKER_01: So we have a full coverage of your entire asset universe.
1:43
SPEAKER_01: And we've been in the industry for a better part of a year.
1:47
SPEAKER_01: And we're looking forward to welcoming most of you on board.
1:50
SPEAKER_01: Thank you.
1:51
SPEAKER_03: So Neil, it's been a while.
1:52
So maybe you can reintroduce yourself a bit for those who have
1:55
not had the pleasure
1:56
SPEAKER_00: of interacting with you.
1:57
SPEAKER_00: Thanks Eric and good evening to everyone.
2:00
SPEAKER_00: My name is Sunil Sanger.
2:02
Listening to the other speakers,
2:04
I'm probably much older and more experienced than them.
2:07
SPEAKER_00: I've been in financial markets for close to 40 years.
2:10
SPEAKER_00: The last 20 plus years in tenure,
2:14
SPEAKER_00: before that in India and in other parts of Africa in the Middle East.
2:17
SPEAKER_00: I have my own firm called Orion Advisory Services,
2:21
SPEAKER_00: where we deal mainly with high net worth clients and some institutions.
2:25
SPEAKER_00: And our focus is on investments.
2:27
And within that,
2:29
we largely focus on the fixed income space,
2:31
which is in treasury
2:32
SPEAKER_00: bills and treasury bonds.
2:33
SPEAKER_00: Thanks and looking forward to interacting with all of you today.
2:36
I'll start with the macro side and then come to the equity side
2:39
and then to the bond side.
2:42
Stephanie,
2:42
how was 2024 in the Kenyan macro space and what are some of
2:46
your observations?
2:48
So last year was quite eventful for everyone and the year was
2:51
marked by both
2:52
SPEAKER_03: progress and challenges.
2:54
So when we start with the progress,
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I'd like to start with the positives.
2:57
SPEAKER_03: Inflation indeed is quite significantly in the year.
3:01
SPEAKER_03: We saw price pressures weaken from an average of 4.6,
3:03
SPEAKER_03: from an average of 7.7% from the previous year,
3:07
SPEAKER_03: that's 2023,
3:07
SPEAKER_03: to 4.6% in 2024.
3:11
SPEAKER_03: And this was as a result of base effects,
3:14
SPEAKER_03: for those who may know what that means,
3:16
as well as lower food prices driven by effective government
3:19
interventions and a
3:21
SPEAKER_03: strengthening of the shilling,
3:22
SPEAKER_03: which helped temper down overall imported inflation.
3:25
SPEAKER_03: Now, when we look at the Kenya shilling,
3:28
I would say the Kenya shilling staged a surprising and stellar
3:31
performance against
3:32
SPEAKER_03: the US dollar.
3:33
SPEAKER_03: And it was a star, even in the sub-Saharan context.
3:37
SPEAKER_03: We saw the shilling appreciate from $1.63 to the dollar in mid-January,
3:42
SPEAKER_03: I believe,
3:43
SPEAKER_03: to $1.29 to the dollar by the end of the year.
3:47
And this recovery was attributed to the timely monetary policy
3:51
adjustments at the
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SPEAKER_03: start of the year,
3:53
as well as just a general fading of those external debt
3:56
concerns that were there
3:58
SPEAKER_03: after the early repayment of the June 2024 euro bond maturity.
4:02
SPEAKER_03: Now,
4:02
SPEAKER_03: when we had this easier,
4:04
SPEAKER_03: easing inflation as price pressures improved and currency stability,
4:08
we did see the central bank more comfortable in lowering the
4:12
CBR from 13% to 11.25% presently.
4:16
SPEAKER_03: And this created a more accommodative policy environment for the market.
4:21
We did see interest rates overall shift lower and also
4:25
borrowing costs cheapened in
4:26
the year as a number of commercial banks adjusted their base
4:30
lending rates lower.
4:32
SPEAKER_03: Now,
4:32
SPEAKER_03: despite all these macroeconomic gains that I've mentioned,
4:35
SPEAKER_03: we did see economic activity overall remain quite subdued.
4:39
SPEAKER_03: And most clearly,
4:41
SPEAKER_03: there is the Stanbik Bank Kenya PMI,
4:44
SPEAKER_03: which is generally an indicator of private sector activity,
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SPEAKER_03: albeit it looks at just a couple of sectors,
4:49
SPEAKER_03: not the whole sector.
4:50
SPEAKER_03: private sector in totality.
4:52
We did see that PMI suggests that private sector activity
4:56
remained lethargic,
4:57
and this was as a result of restrained consumer spending and
5:02
weakened investor confidence,
5:04
SPEAKER_03: which limited business investments and activity in that respect.
5:08
We also saw an increase in public discontent and an uncertain
5:13
fiscal and tax policy environment,
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SPEAKER_03: adding on to that drag to economic growth.
5:19
As a result,
5:19
it is anticipated that GDP growth in 2024 will likely be around 5%.
5:25
SPEAKER_03: I believe the CBK has mentioned around 5.1%.
5:29
SPEAKER_03: And this is down from 5.6%.
5:32
SPEAKER_03: That was recorded in 2023.
5:33
SPEAKER_03: Yeah, that's generally the view of 2024.
5:37
Sentiment-driven challenges,
5:38
structural challenges,
5:39
despite several gains on the macro front.
5:42
SPEAKER_03: A quick question to you.
5:43
One of the things that at least the government keeps
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reiterating to Kenyans is that
5:47
SPEAKER_03: they currently drink bubble.
5:48
SPEAKER_03: Despite some of the things that people feel in the market,
5:51
do you agree with the government in terms of targeting better
5:55
or like more of the
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SPEAKER_03: common one to care that things are not actually getting better?
5:59
SPEAKER_03: There's a phrase that normally says numbers don't lie.
6:01
SPEAKER_03: So we can only work with the numbers.
6:02
And I believe that's what the government is doing,
6:04
working with the numbers.
6:05
SPEAKER_03: Whether they lie or not doesn't matter.
6:07
SPEAKER_03: But the numbers do point to an improved macroeconomic space.
6:11
SPEAKER_03: But there are some challenges that are dragging that lower.
6:14
SPEAKER_03: Again, like I say.
6:16
Numbers don't lie,
6:17
there's that phrase,
6:18
but numbers as well are or can be manipulated.
6:21
SPEAKER_03: I do not want to assume the latter.
6:24
SPEAKER_03: I just want to say that the numbers do point to an improved space.
6:28
Whether we as a people feel it is another question because even
6:32
once we have seen
6:33
SPEAKER_03: our price pressures improve,
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SPEAKER_03: the currency stabilize,
6:36
SPEAKER_03: incomes have remained quite sticky,
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SPEAKER_03: business,
6:39
SPEAKER_03: the rebound in business activity remains still quite slow.
6:43
SPEAKER_03: despite easing of those protests that we saw last year.
6:46
SPEAKER_03: So it's still a struggle.
6:48
SPEAKER_03: There's still a lag in terms of the recovery.
6:50
SPEAKER_03: So numbers may point to one thing, but the recovery points to another.
6:54
SPEAKER_03: And that's what we feel as a people on the ground.
6:57
SPEAKER_03: As you heard from Steph,
6:58
one of the best performing currencies in Africa and worldwide
7:01
was a Kenya shilling
7:02
SPEAKER_03: last year.
7:03
And that boosted a bit of the performance,
7:05
especially on the equity side.
7:06
SPEAKER_03: Howie,
7:07
SPEAKER_03: you can give us a bit of perspective,
7:09
SPEAKER_03: picking up from there on how the markets performed in 2024,
7:12
SPEAKER_03: the equity markets especially.
7:14
SPEAKER_01: Last year was quite stellar performance for the Kenyan markets.
7:20
SPEAKER_01: We did see the NSC25 post its best performance since 2015 or so.
7:25
SPEAKER_01: It was up around 42.96%.
7:26
SPEAKER_01: The NAC was up about 34.06%, which was its best performance since 2013.
7:34
SPEAKER_01: A huge factor behind this performance was,
7:37
SPEAKER_01: of course,
7:38
SPEAKER_01: the banking sector,
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SPEAKER_01: where we saw growth in EPS,
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SPEAKER_01: majorly led by KCB,
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SPEAKER_01: which posted circa approximately about 80% growth in earnings.
7:51
SPEAKER_01: largely due to lower provisions.
7:53
And I think the regional subsidiaries also showed quite a
7:57
significant boost in performance.
7:59
SPEAKER_01: I think the equity markets,
8:01
we've seen also some of the government-controlled securities or
8:05
companies also
8:06
SPEAKER_01: starting to really pose some significant performance.
8:10
SPEAKER_01: We had KPLC posting earnings of about $41 billion for the full year 2024,
8:16
SPEAKER_01: which actually shocked markets.
8:18
SPEAKER_01: I think it was the best performing stock last year, up more than 200%.
8:22
SPEAKER_01: And I think the trend locally,
8:25
SPEAKER_01: despite these exogenous factors influencing the economy,
8:29
it's not really translated into pessimistic sentiment within
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the stock market.
8:35
SPEAKER_01: And I think the trend for now seems positive.
8:39
SPEAKER_01: And I think on a case-to-case basis,
8:42
SPEAKER_01: there's certain sectors that we do see great opportunities in.
8:46
For Avocap,
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we've been investing through our Thamani equity fund,
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mostly focused on banks.
8:52
SPEAKER_01: Safaricom is something we're looking into.
8:55
SPEAKER_01: I think they gave us guidance on the Ethiopia breakeven.
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SPEAKER_01: They pushed it back about a year,
9:00
SPEAKER_01: which has acted to temper the overall performance of the index.
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SPEAKER_01: But once we see any signs of destabilization within that region,
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then I do think we should continue to see positive momentum
9:12
towards the upside.
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SPEAKER_03: There's some deals that stood out last year.
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SPEAKER_03: I think one of the ones that stood out was the Bamburi case,
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SPEAKER_03: which boosted a bit of the performance,
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SPEAKER_03: especially on that share price itself.
9:24
Could you give a few pointers on some of the key deals that
9:27
last year that stood out?
9:28
I think the other one was the case it was supposed to close a
9:31
deal to sell NBK,
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SPEAKER_03: didn't materialize per se.
9:34
But any other deals that you were paying attention to last year
9:37
that stood out for you?
9:38
Last year,
9:39
I think,
9:39
yeah,
9:39
Bamburi was one of the deals that really caught investors' attention.
9:44
SPEAKER_01: We had Savannah,
9:46
SPEAKER_01: Klinka,
9:46
SPEAKER_01: and Amson caught in this,
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SPEAKER_01: we could say,
9:49
SPEAKER_01: bidding war,
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SPEAKER_01: which didn't really materialize in favor of a neutral party.
9:54
SPEAKER_01: So I think that's one of the major deals we also focused on.
9:58
SPEAKER_01: Outside of that, it was quite tame in terms of deal making.
10:02
SPEAKER_01: We are anticipating Cabasa to make or finalize a bid for bulk gases.
10:07
SPEAKER_01: That also is still in no man's land.
10:10
SPEAKER_01: We are still looking to see if they're going to show interest.
10:13
And yes,
10:14
we do anticipate as rates come down,
10:16
then we should see more M&A activity.
10:18
SPEAKER_01: So yeah,
10:19
SPEAKER_01: for now,
10:19
we are tracking Kabasid and trying to see if they might up
10:23
their bid for bulk gases currently.
10:26
SPEAKER_03: I'll come back to you on NPL.
10:28
Once I deal with something very major that happened in the bond
10:30
market last year,
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SPEAKER_03: I think the rates were declining for most of last year.
10:34
As to Neil,
10:35
what's your take on the bond market and how it performed in
10:37
2024 in Kenya?
10:39
SPEAKER_03: And perhaps if you have some perspective also on the euro bond and all.
10:42
SPEAKER_00: Yes, thanks.
10:43
Now,
10:43
the bond market was largely influenced by factors that were
10:48
occurring outside of Kenya.
10:50
I think Stephanie already spoke about the euro bond,
10:53
which was maturing in June 2024.
10:55
SPEAKER_00: This was the first euro bond issued by Kenya.
10:58
SPEAKER_00: It was a large one, 2 billion.
10:59
And there was a bullet maturity or a payment to be made of the
11:03
entire amount in June.
11:05
SPEAKER_00: Now,
11:05
SPEAKER_00: what had happened in the past year or so before that,
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SPEAKER_00: there had been defaults on international debts by a number of countries,
11:12
SPEAKER_00: including Sri Lanka,
11:13
SPEAKER_00: Ghana,
11:14
SPEAKER_00: Zambia.
11:15
And Kenya was listed as among the top 10 countries likely to
11:19
default in 2024.
11:19
SPEAKER_00: So there was a lot of uncertainty in that which grew up the yields,
11:24
SPEAKER_00: which started in 2023,
11:25
the yields or the rates on treasury bills and on domestic bonds
11:30
as well as euro
11:31
SPEAKER_00: bonds going up in the secondary markets.
11:34
So the Kenya euro bonds actually were in the high teens at
11:39
18-19% at one point of time.
11:40
SPEAKER_00: So at deep discount to the issue price.
11:42
SPEAKER_00: But of course,
11:43
the refinancing which happened early in the year of the euro
11:46
bond and then early repayment.
11:48
SPEAKER_00: That really calmed things down.
11:49
SPEAKER_00: It brought the yield back into single digits for the euro bonds.
11:53
SPEAKER_00: Similarly,
11:53
SPEAKER_00: if you look at how the treasury bills fared,
11:56
SPEAKER_00: the 91-day treasury bill started the year at just under 16%,
12:00
went to a high of 16.73% in March when the doubts or the fears
12:05
about the default
12:07
SPEAKER_00: were at the highest on the euro bond.
12:09
And then at the end of the year,
12:11
we're actually down to single digits below 10%.
12:13
SPEAKER_00: The yield is about 9.89%.
12:17
SPEAKER_00: Similarly,
12:17
SPEAKER_00: the 364-day tragedy bill in December 2023 was at 16.2%,
12:21
SPEAKER_00: went as high as 16.99% in March,
12:26
SPEAKER_00: and then has declined substantially and closed the year at about 11.4%.
12:29
SPEAKER_00: So it's a huge swing in the interest rates,
12:33
SPEAKER_00: more than a 5% decline in the interest rates is massive.
12:37
SPEAKER_00: Similarly,
12:38
SPEAKER_00: on the bonds,
12:38
the most traded and the most active bond in the market was the
12:42
infrastructure bond,
12:43
SPEAKER_00: the eight-and-a-half-year infrastructure bond,
12:44
SPEAKER_00: which was issued in February.
12:46
SPEAKER_00: Again,
12:47
at the height of the uncertainty about markets and about the
12:51
ability of Kenya to
12:52
SPEAKER_00: repay its debt.
12:53
SPEAKER_00: And this was issued at a yield of 18.46%.
12:54
SPEAKER_00: Eight-and-a-half-year bond,
12:57
SPEAKER_00: tax-free bond,
12:58
SPEAKER_00: issued at a yield of 18.46%,
13:01
SPEAKER_00: which was like an unthinkable yield for issuing a tax-free bond.
13:05
This has since been appreciating and now the yields at the end
13:08
of the year will have lost.
13:10
In the secondary market,
13:11
it was somewhere below 14% in the about 13.8%,
13:13
13.9%.
13:15
SPEAKER_00: So that's a huge move in terms of bond yields.
13:19
SPEAKER_00: Euro bonds have also yields are just under 10% at this point of time.
13:24
SPEAKER_00: So all in all, we were able to cross the hump of the euro bond repayment.
13:30
And certainly things in terms of interest rates look much
13:33
better towards the end of the year.
13:35
SPEAKER_00: For you,
13:36
given your expertise in markets and having been in markets for
13:39
40 plus years,
13:40
what should investors do in a declining interest rate
13:43
environment like the one we
13:44
SPEAKER_03: were observing from last year going into this year?
13:47
SPEAKER_03: What are the things that maybe investors should pay attention to?
13:49
SPEAKER_00: Okay,
13:50
SPEAKER_00: I think particularly at this time during the current year,
13:54
it was more external factors which determined the movement of
13:58
interest rates and
13:59
SPEAKER_00: bond deals in this market.
14:01
SPEAKER_00: I think one of the major factors was what happened with the U.S.
14:05
SPEAKER_00: interest rates.
14:05
The Fed Fund rate,
14:07
which had risen to 5% in a very short time from 2022 to 2023 to 5.5%.
14:11
SPEAKER_00: We finally started seeing a reversal of that rate during the year.
14:16
And that was a major relief to bond markets,
14:20
not just in Kenya,
14:21
but in most emerging markets.
14:23
The avoidance of any further defaults during the year in 2024,
14:27
again,
14:27
that was a big positive.
14:28
SPEAKER_00: A number of African countries managed to issue euro bonds,
14:32
SPEAKER_00: which sort of the market had been closed in 2023.
14:34
So I think the first country to issue was Ivory Coast and then
14:38
Kenya followed as well.
14:40
SPEAKER_00: So this was a factor.
14:41
SPEAKER_00: So I think in terms of investment and looking at interest rates,
14:44
I think we need to continue to see what's happening in
14:46
international markets.
14:48
SPEAKER_00: And there are a few worrying signs, which looks like the U.S.
14:51
SPEAKER_00: interest rate cycle seems to have now taken a pause.
14:55
SPEAKER_00: And of course,
14:56
SPEAKER_00: the uncertainty about the new administration coming in,
14:59
SPEAKER_00: which is now just less than a week away,
15:01
SPEAKER_00: and what economic policies they will follow,
15:03
SPEAKER_00: what impact they will have on the markets.
15:05
I think we are entering an area of unknown,
15:07
given the new administration that is coming in.
15:09
SPEAKER_00: So that's something that as bond investors need to look out.
15:11
On the local front,
15:13
we need to see how the government's policies are going to develop.
15:17
SPEAKER_00: As of now,
15:18
something that we track is how the government is doing against
15:21
its borrowing
15:22
SPEAKER_00: requirement for the year.
15:23
I think the last stated borrowing requirement that the
15:26
government stated from the
15:27
SPEAKER_00: domestic market was $400 billion.
15:29
This is for the government's financial year,
15:31
which runs from July to June.
15:34
The requirement stated was 400 billion,
15:37
which they have easily surpassed.
15:38
SPEAKER_00: And currently they are standing at 487 billion.
15:41
SPEAKER_00: If you can see what the government has been doing,
15:43
SPEAKER_00: they've been pushing down the rates of treasury bills,
15:46
SPEAKER_00: refusing to take money at higher rates,
15:48
SPEAKER_00: rejecting bids.
15:49
SPEAKER_00: I think in that sense,
15:51
they are in a comfortable position on their following
15:53
requirement for the year.
15:54
Unless,
15:54
of course,
15:55
we see a big jump in the requirement in the supplementary budget.
15:59
SPEAKER_00: But I certainly think for the next six months,
16:01
the government seems to be in a slightly comfortable position
16:04
as far as the
16:05
SPEAKER_00: borrowing is concerned.
16:06
We are joined by Dixon here,
16:08
who also follows emerging markets and Kenya in particular.
16:11
Dixon,
16:11
maybe you can give us a bit of context on Kenya among emerging markets.
16:15
SPEAKER_03: How is the view from the investor perspective?
16:18
SPEAKER_03: And what are your observations, especially for 2024?
16:20
SPEAKER_02: Hi, everybody, and good evening.
16:24
SPEAKER_02: For Kenya,
16:25
the story like has been told by most of the previous speakers
16:28
was a tough start,
16:29
SPEAKER_02: especially from a yield perspective in the first part of the year,
16:32
SPEAKER_02: which morphed into much lower yields down the line.
16:35
But the story on Kenya actually starts much earlier,
16:38
I think,
16:39
towards the end of 2023.
16:41
We did see some bit of investors' interest started to come
16:45
through on the back of
16:46
SPEAKER_02: the elevated currency levels.
16:48
SPEAKER_02: That time was around 158, and yields were already on the way towards 18%.
16:54
SPEAKER_02: But at that point,
16:55
SPEAKER_02: at least from the equity side,
16:56
I think the view was that the high interest rates were going to
17:00
be disruptive and
17:01
SPEAKER_02: we were not seeing any sort of interest there.
17:04
SPEAKER_02: Ideally,
17:05
it was more of a speculative buy and the high yields are the
17:09
attractive bit because
17:10
SPEAKER_02: the risk reward metrics were looking slightly better.
17:13
SPEAKER_02: Currency had moved nearly 25%.
17:16
SPEAKER_02: Yields are backed up substantially, going towards 18%.
17:19
SPEAKER_02: At that point in time, we did see quite a lot of interest in Kenya.
17:23
SPEAKER_02: I think when we issued the first IFB easily,
17:26
SPEAKER_02: I think the rumored investor,
17:29
SPEAKER_02: official investor participation was about a billion dollars.
17:31
SPEAKER_02: Looking across Africa,
17:33
SPEAKER_02: at Africa point in time,
17:34
SPEAKER_02: the other market that was seeing that sort of interest,
17:37
SPEAKER_02: I think,
17:37
SPEAKER_02: was Egypt,
17:38
SPEAKER_02: which was early Feb when they did their Deval.
17:41
And at the same time,
17:42
they had the 35 billion inflows from offshore side.
17:45
SPEAKER_02: So those two trades were quite on the fore of our investors.
17:48
SPEAKER_02: Nigeria also was quite happening at that particular point in time.
17:52
SPEAKER_02: We had seen the initial deal after the government came in last year.
17:56
But there was still a bit of hesitation by investors because
18:00
some of the reforms
18:01
SPEAKER_02: that they wanted to see from Nigeria had not come through,
18:03
especially having a fully free floating currency and having
18:06
more access to investors,
18:07
but especially towards the OMO bills that sort of would have
18:11
given investors access
18:12
SPEAKER_02: to yields.
18:12
SPEAKER_02: Because even if you have yields of 30%,
18:14
SPEAKER_02: like they had gone,
18:15
SPEAKER_02: but you don't have a bus to buy,
18:16
SPEAKER_02: then that limits you.
18:18
SPEAKER_02: Or worse, you're getting then ability to access markets to get FX.
18:22
SPEAKER_02: And at market levels,
18:24
SPEAKER_02: at the point the auction is declared,
18:26
SPEAKER_02: that again,
18:26
SPEAKER_02: those were reforms that were still pending at that point in time.
18:29
So Kenya was actually quite a good story compared with these
18:33
other markets.
18:34
SPEAKER_02: And for that,
18:35
I think it was both a currency play for most of the investors
18:38
who came there and
18:39
SPEAKER_02: both a duration play,
18:40
SPEAKER_02: a currency play and a carry trade.
18:42
SPEAKER_02: And for the guys who came in quite early and were unhedged,
18:45
I think we've seen some guys make returns of upwards of 60% on
18:49
their trades in
18:49
SPEAKER_02: Kenya last year,
18:50
which ideally would have been one of the best trades they would
18:53
have done in the year.
18:54
SPEAKER_02: Thanks.
18:55
SPEAKER_03: Thank you.
18:56
SPEAKER_03: Steph, back to you.
18:57
SPEAKER_03: There's a question here coming through from Derry.
18:58
He's asking,
19:00
it's quite evident that the government is having cash flow challenges.
19:03
What's your general view of the government's credit-worthiness
19:07
going into the new year?
19:08
SPEAKER_03: And also interest rates decline.
19:10
Is that reflective really of the government's improving
19:13
credit-worthiness in that regard?
19:16
SPEAKER_03: What do you think?
19:17
SPEAKER_03: Oh, wow.
19:18
I would refrain from stating whether the government is indeed
19:21
credit-worthy or not
19:23
SPEAKER_03: to answer that question.
19:26
SPEAKER_03: Fair enough.
19:27
SPEAKER_02: Dickson, what do you think about that?
19:29
SPEAKER_02: Look, my take, we had this call last year, I think around March.
19:33
SPEAKER_02: And I think Derry was of the view that we might default.
19:37
SPEAKER_02: I've always said that what we had was a liquidity issue.
19:40
SPEAKER_02: We are not yet at a solvency issue.
19:42
SPEAKER_02: Ideally, it's all about how we're budgeting.
19:45
SPEAKER_02: So we are setting ambitious targets on the budget side.
19:49
And part of that was supposed to be funded by revenues that
19:51
were not being met.
19:53
SPEAKER_02: And obviously,
19:54
SPEAKER_02: as the yields on the local currency debt started going up,
19:57
the cost of that then made it likely that we would get into
20:01
debt distress if the
20:02
SPEAKER_02: situation did not turn.
20:04
SPEAKER_02: And at the same time,
20:05
we had the cliffhanger of the euro bonds that was supposed to
20:08
come during June.
20:09
Remember,
20:10
the euro bond was just a part of what was supposed to have
20:13
settled last year.
20:13
The total foreign currency maturities and payments last year
20:18
was 5.2 billion.
20:19
Quite substantial,
20:20
especially compared with the reserves level we had back then.
20:22
Without the support we got from IMF,
20:24
World Bank,
20:24
and being able to roll the euro bond.
20:26
SPEAKER_02: Ideally,
20:27
we're looking at close to depleting our reserves if we were to
20:29
settle that from
20:30
SPEAKER_02: existing resources.
20:32
SPEAKER_02: So at that point in time, things were looking dire.
20:34
SPEAKER_02: As of this time, I think we're in a much better picture, honestly.
20:38
SPEAKER_02: We've already met the annual borrowing target, so to speak.
20:41
SPEAKER_02: So I think between now and June,
20:42
we'll just be rolling over maturities or smoothening the curve
20:46
unless we see a
20:46
SPEAKER_02: supplementary budget coming through.
20:48
SPEAKER_02: So in terms of solvency and liquidity, we are in a much better picture.
20:53
SPEAKER_02: If anything,
20:53
I think part of the pushback that we've seen was where we're
20:57
supposed to draw down
20:58
some funds from the UAE and we had to postpone that because we
21:01
were going to bust
21:02
SPEAKER_02: the agreed budget deficit ceilings,
21:03
SPEAKER_02: especially on foreign currency borrowing with IMF.
21:06
SPEAKER_02: So it's not for lack of market access that we over that hump.
21:10
So as of this point,
21:11
I would say maybe the risks are more medium-term,
21:14
more than short-term.
21:15
SPEAKER_02: There is nothing that suggests that our credit world has become worse,
21:19
SPEAKER_02: if anything,
21:19
SPEAKER_02: has become better.
21:20
SPEAKER_02: If I look back at Moody's downgrade,
21:22
SPEAKER_02: pro-indigencies,
21:23
SPEAKER_02: protests,
21:24
SPEAKER_02: and the finance bill being shelved,
21:26
SPEAKER_02: they were saying we're going to have an issue with market access.
21:29
SPEAKER_02: We were at a point where,
21:30
SPEAKER_02: okay,
21:30
we can't raise revenues anymore because you've suspended the
21:33
revenue collecting
21:33
measures and are you having issues getting funding at adequate
21:37
or at favorable
21:38
SPEAKER_02: levels from the market because we were issuing at 18%.
21:41
So the combination of those two meant that things were looking
21:43
really dire,
21:44
SPEAKER_02: but that's all changed.
21:44
SPEAKER_02: So we are now issuing debts at the near end of the single,
21:47
SPEAKER_02: at a single term,
21:48
SPEAKER_02: at single digit rates below 10%.
21:50
SPEAKER_02: We've met the annual borrowing program.
21:52
And ideally,
21:53
the maturity profile has improved somewhat compared to what we had.
21:56
SPEAKER_02: I think the next cliffhanger might come around 27,
21:59
SPEAKER_02: 2027 when we have the next bunch of euro bonds coming through.
22:02
And my sense is that we are going to be able to roll over this
22:05
unless there is
22:06
SPEAKER_02: economy that had very restrictive interest rates.
22:08
SPEAKER_02: We had inflation at 3% and yields of 16%.
22:11
SPEAKER_02: We're talking about 12 to 13% real rates.
22:15
SPEAKER_02: Those are quite restrictive.
22:16
SPEAKER_02: And we've seen that manifest in the higher NPLs in the banking system.
22:21
The slowdown in demand and aggregate demand in economy and
22:23
household consumption.
22:25
All these,
22:25
I think we have a chance that they might ameliorate a little bit.
22:29
SPEAKER_02: Because if you have lower interest rates and for arguments purposes,
22:32
SPEAKER_02: we see a pickup in bank lending.
22:34
SPEAKER_02: That should help consumption a bit.
22:36
SPEAKER_02: And if that were to improve, then the revenue side would improve.
22:38
SPEAKER_02: And if the revenue side would improve, that would be the last cog.
22:41
SPEAKER_02: We'll need then to see slightly better ratings, sovereign ratings.
22:45
SPEAKER_02: Thank you.
22:46
SPEAKER_03: Thank you, Dickson.
22:46
SPEAKER_03: Stephanie,
22:47
any other observations perhaps on 2024 that stood out for you
22:50
in terms of the markets,
22:52
SPEAKER_03: inflation here,
22:53
SPEAKER_03: there,
22:54
SPEAKER_03: and terms of the progress the government is making,
22:56
SPEAKER_03: or at least they were making on the macro front last year?
23:00
SPEAKER_03: In terms of other observations,
23:02
SPEAKER_03: maybe looking at how effective it was,
23:05
at least the monetary policy and fiscal policy was in managing
23:08
inflation and
23:09
SPEAKER_03: overall growth.
23:10
SPEAKER_03: So when you're looking at it,
23:11
SPEAKER_03: maybe from how effective it was,
23:13
SPEAKER_03: monetary policy,
23:14
SPEAKER_03: where we saw it coming from a restrictive policy environment to a more
23:17
SPEAKER_03: accommodative environment,
23:19
SPEAKER_03: we did see the success.
23:21
SPEAKER_03: Inflation was brought down and the shilling was indeed stabilised.
23:25
SPEAKER_03: So that did help.
23:26
SPEAKER_03: But what we did not see was how this translates.
23:30
SPEAKER_03: ...into stimulating the overall economic growth,
23:33
SPEAKER_03: given that the cost of credit still remains elevated,
23:35
SPEAKER_03: despite some commercial banks lowering the base lending rates.
23:39
SPEAKER_03: And this is because credit risks still persist in the market.
23:43
I believe CBK last year in December did state that the NPL
23:47
ratio is about what?
23:48
SPEAKER_03: Is it 16%, 17%?
23:50
SPEAKER_03: I can't remember nicely, double digits.
23:53
SPEAKER_03: So credit risk still remain quite elevated, particularly for SMEs.
23:57
SPEAKER_03: And this still necessitates this higher overall borrowing costs,
24:01
SPEAKER_03: despite the shift towards risk-based lending,
24:04
SPEAKER_03: which again,
24:05
there's skepticism around its effectiveness and whether it
24:08
actually works,
24:09
SPEAKER_03: particularly for SMEs.
24:10
SPEAKER_03: Now, in terms of fiscal policy and how it supported overall growth,
24:14
I don't believe last year they had much success owing to
24:18
various structural inefficiencies,
24:20
as well as the issues that Dixon has mentioned around
24:24
challenges in expenditure
24:25
SPEAKER_03: rationalisation and also revenue collection challenges.
24:29
And Dixon mentioned revenue strategies for the government have
24:32
tended to be quite
24:33
overambitious and combined with the public protests that we did
24:36
see last year and
24:37
SPEAKER_03: has died down over the years.
24:39
SPEAKER_03: And the resultant policy uncertainty,
24:43
we did see overall private sector activity come low and this
24:46
just dragged down growth.
24:47
SPEAKER_03: So generally, fiscal policy wasn't as effective.
24:50
SPEAKER_03: Monetary policy was effective in inflation and the shilling.
24:53
SPEAKER_03: But in terms of overall growth, that was the gap.
24:56
SPEAKER_03: And going forward into 2025,
24:59
this is a hurdle that both the central bank and the government
25:02
need to work on,
25:03
SPEAKER_03: having just that coordinated policy response to support growth.
25:07
I have seen estimations of GDP growth in 2025 being around 5.5%
25:10
from the 5% I
25:10
SPEAKER_03: mentioned in 2024,
25:11
SPEAKER_03: and that's an estimate.
25:15
SPEAKER_03: So to achieve that growth, there's need for that coordinated response.
25:20
SPEAKER_03: Obviously,
25:21
SPEAKER_03: taking into consideration what happens in the global sphere,
25:24
SPEAKER_03: but locally,
25:25
SPEAKER_03: that coordinated response will be quite key.
25:27
SPEAKER_03: Howie, back to you now.
25:28
SPEAKER_03: I think the markets have started quite strongly 2025,
25:32
SPEAKER_03: almost at the same pace at which they closed 2024.
25:35
Any other pickings that you have in the market in terms of how
25:37
are investors' loads
25:38
SPEAKER_03: feeling like heading into this new year?
25:41
SPEAKER_01: I think for local investors,
25:44
I think you're still seeing that FOMO into some of the names
25:48
that had strong
25:48
SPEAKER_01: momentum into the end of last year.
25:51
SPEAKER_01: We still have KPLC being one of the top performers.
25:56
SPEAKER_01: KQ recently relisted, popping about 60% plus.
26:01
You've had housing finance as well after the rights issue
26:05
performing quite
26:06
SPEAKER_01: significantly relative to the market,
26:09
SPEAKER_01: Kenyari,
26:10
SPEAKER_01: Britain.
26:10
SPEAKER_01: So you're almost having this catch-up trade.
26:12
The laggards are now trying to catch up to some of the higher
26:16
returning stocks over
26:17
SPEAKER_01: the past year.
26:19
Though I think the key factor going into this year will be the
26:23
geopolitical environment.
26:24
SPEAKER_01: As we do know, there's a new presidential America.
26:26
SPEAKER_01: His fiscal policies are largely protectionist.
26:30
SPEAKER_01: And in that,
26:31
we are likely going to be headed into a period where there's
26:34
more geopolitical tensions,
26:36
SPEAKER_01: whether it's with Russia,
26:38
SPEAKER_01: China.
26:38
And so a key development we're tracking is also the
26:42
negotiations between Israel and Hamas.
26:44
SPEAKER_01: That will be a key
26:46
contributor towards your export driven businesses such as
26:50
Kakuzi who use the Red
26:51
SPEAKER_01: Sea for most of their export activity.
26:53
And I think shaping into based on how the geopolitical
26:57
situation unfolds and what
26:58
that does to commodities and what that means for our current
27:01
account balances and
27:02
SPEAKER_01: in that the currency,
27:04
then I think if we don't see a ratcheting up or an escalation
27:09
in this tensions,
27:10
SPEAKER_01: then I do believe we're poised to see at least some net foreign inflows.
27:15
SPEAKER_01: into this year.
27:15
But for now I think foreigners will still be on hold until
27:19
there's a bit more
27:20
SPEAKER_01: certainty or clarity with regards to the global environment.
27:24
SPEAKER_03: And then,
27:24
SPEAKER_03: of course,
27:25
SPEAKER_03: I think two or three years ago,
27:26
there was a time when investors had it rough in terms of taking
27:29
out money from the country.
27:30
And there was a backlog with the CBK in terms of investors
27:33
getting access to dollars and all.
27:34
SPEAKER_03: I think the situation has improved a little over that period of time,
27:37
given like the shilling was at 160 something and now it's 129
27:41
and stable over the
27:42
SPEAKER_03: past half year.
27:43
So has that contributed to investors feeling a bit more
27:46
comfortable investing in Kenya?
27:48
SPEAKER_01: Yeah, the confidence has definitely increased.
27:51
SPEAKER_01: We're seeing at least some foreigners also coming to our bond markets.
27:54
SPEAKER_01: The stock market we've seen,
27:56
SPEAKER_01: at least for the past quarter,
27:57
SPEAKER_01: we did see some net foreign inflows into certain counters.
28:00
SPEAKER_01: And so I think,
28:01
SPEAKER_01: yeah,
28:01
the benefit we do have with some of our local securities is the diversification.
28:05
SPEAKER_01: So at least you have your fees and equities,
28:08
SPEAKER_01: which have also large subsidiaries in Congo,
28:10
SPEAKER_01: which largely have dollar denominated assets.
28:13
SPEAKER_01: So it does provide you that currency edge.
28:15
SPEAKER_01: And so I think we do have,
28:17
SPEAKER_01: at least because of the size of our entities,
28:20
some of these stocks do provide you currency diversification as
28:23
well as regional diversification.
28:25
So no singular factor really influences or can negatively
28:29
impact the stock performance.
28:31
SPEAKER_01: So I do think,
28:32
SPEAKER_01: yeah,
28:32
foreigners might start to open up more because sometimes the
28:36
commodity price appreciation,
28:37
SPEAKER_01: if it does occur,
28:39
SPEAKER_01: should be beneficial for your Tanzania,
28:41
SPEAKER_01: your Congo.
28:42
And I do think some of our local counters should stand to
28:45
benefit from these factors or events.
28:49
Sunil,
28:50
what are clients telling you about their worries heading into
28:53
2025 in the Kenyan market?
28:55
What we have seen largely from our high net worth clients is
28:59
caution that I think
29:01
what happened particularly with the exchange rate in the
29:04
leading up to probably
29:06
around February 2024 when the shilling in a very short time
29:10
went from about 120 to 116.
29:13
I think that has shaken the confidence of a lot of high net
29:17
worth investors.
29:17
SPEAKER_00: So to a certain extent,
29:19
SPEAKER_00: we are seeing that investors,
29:20
SPEAKER_00: when they're getting bond maturities,
29:22
SPEAKER_00: they're not reinvesting.
29:24
And only a part of it is getting reinvested into new issues or
29:26
into new treasury bonds.
29:28
So we have seen a lot of preference of moving into hard
29:31
currency from our clients.
29:32
SPEAKER_00: Yeah,
29:33
SPEAKER_00: because this thing,
29:34
they don't want to go that this cycle is very much recent and
29:37
in recent memory for investors.
29:39
And they certainly don't want to see that kind of loss in hard
29:42
currency terms of
29:43
SPEAKER_00: their investments.
29:45
SPEAKER_00: There is caution in those terms that we are seeing from investors.
29:48
SPEAKER_00: The interest rates,
29:49
SPEAKER_00: of course,
29:50
SPEAKER_00: at the beginning of the year,
29:51
SPEAKER_00: 18%,
29:51
SPEAKER_00: 18% tax free were very attractive.
29:54
SPEAKER_00: When now rates are at the 13% to 14%,
29:58
there is a little bit of reluctance to commit for long-term at
30:00
this time from our investors.
30:02
SPEAKER_03: That reflected a bit in the T-bills, right?
30:04
People want to lend short-term 90 days and stay away from the 180,
30:10
365 one.
30:11
Is that something also that would push rates a little lower or
30:15
a little higher?
30:16
What would be a trend if investors keep insisting on only
30:19
lending at short-term
30:20
SPEAKER_03: rates only and not wanting to lend long at all?
30:23
SPEAKER_00: Yeah,
30:23
SPEAKER_00: so to that extent,
30:25
SPEAKER_00: yes,
30:25
the shorter term rates would tend to trend lower and the
30:28
central bank has been
30:29
doing a good job of really rejecting higher rate bids and
30:32
making sure that the
30:33
SPEAKER_00: treasury bill rates come lower.
30:35
SPEAKER_00: But that I think at least on the 364 days,
30:38
SPEAKER_00: we are not seeing that happening really in a significant way now.
30:40
The kind of drops that we were seeing in November and December
30:44
are no longer happening.
30:45
So we are probably getting close to equilibrium in rates and we
30:49
may not see the
30:50
SPEAKER_00: short-term rates going down very much more.
30:52
A lot of our investors are waiting to see if there's a new
30:55
infrastructure bond issue,
30:56
SPEAKER_00: which in general,
30:57
SPEAKER_00: an infrastructure bond issue always gets a good response from the market,
31:00
SPEAKER_00: both from domestic investors as well as from foreign investors.
31:04
SPEAKER_00: In terms of the interest rate gap with international rates,
31:09
SPEAKER_00: I think that is closed.
31:10
It's not as attractive as it was at the beginning of 2024 or
31:15
even in the middle of 2024.
31:16
SPEAKER_00: I think with now uncertainty on U.S.
31:19
SPEAKER_00: rates, we have already seen the bond yields in the U.S.
31:22
SPEAKER_00: starting to go up.
31:23
SPEAKER_00: The U.S.
31:24
SPEAKER_00: 10-year bond now is yielding at 4.79%.
31:27
SPEAKER_00: So when we compare that with about 13% or just under 14% in Kenya,
31:33
SPEAKER_00: that yield is starting to look less attractive to foreign investors,
31:36
SPEAKER_00: the gap that is there,
31:37
particularly if the Federal Reserve now slows down or stops
31:41
reducing interest rates.
31:42
SPEAKER_00: Again,
31:43
some of you who follow international markets may have seen that
31:46
the UK bond yields
31:48
SPEAKER_00: have gone to a high,
31:49
SPEAKER_00: that is a multi-year high,
31:51
SPEAKER_00: the highest level since 2008.
31:52
SPEAKER_00: I think the yield gap for the carry trade,
31:56
SPEAKER_00: which a lot of foreign funds do,
31:58
SPEAKER_00: is not as attractive as it was during 2024.
32:01
So we may see a slowdown of foreign investments into Kenyan
32:04
bonds and treasury bills.
32:06
Whereas I think short-term rates will stay low or could even
32:09
trend lower.
32:10
I do not see that much room now for declining the bond yields
32:14
during 2025.
32:16
SPEAKER_03: We are almost towards the end of the spaces today.
32:19
SPEAKER_03: So if you have any questions that you want our panelists to answer,
32:22
I'm going to go with one round of questions and then we're
32:25
going to take a few
32:25
SPEAKER_03: questions from the public.
32:26
SPEAKER_03: So I'll start with Stephanie.
32:28
SPEAKER_03: In terms of outlook for 2025,
32:30
what are some of the key things that you yourself are paying
32:33
attention to and some
32:34
SPEAKER_03: of the things that you expect at least to happen in the markets in 2025?
32:38
SPEAKER_03: Also,
32:38
SPEAKER_03: one more question for you is,
32:39
does the government have space for more taxes than the option
32:42
of the finance queen
32:43
SPEAKER_03: last year and the proper than it was?
32:47
SPEAKER_03: Okay, let me first start with the outlook 2025.
32:50
Now,
32:50
in 2025,
32:51
I would say that economic conditions are in a colicky state.
32:56
That is that the economic environment offers both promise and satisfaction.
33:01
We've seen the stabilization of the shilling in 2024 and the
33:04
current administration
33:05
SPEAKER_03: did very well.
33:06
SPEAKER_03: The government,
33:07
SPEAKER_03: central bank,
33:07
SPEAKER_03: whatever you want to call it,
33:09
SPEAKER_03: did very well in stabilizing the USD cash rate.
33:13
SPEAKER_03: And we are likely to see not as much pressure as we did see in 2023.
33:18
SPEAKER_03: But nonetheless,
33:19
there are some external factors that are likely to feed into
33:22
the cash value in this year.
33:24
SPEAKER_03: One, Sunil did point out the interest rate differential narrowing.
33:27
SPEAKER_03: So local currency assets may not be as attractive to foreign investors.
33:32
SPEAKER_03: So that could weaken that attraction on cash.
33:35
And secondly,
33:36
less attraction to local currency assets and thus less demand
33:39
for cash.
33:40
SPEAKER_03: So that could result in pressure for the Kenya shilling.
33:43
I anticipate at the end of the year,
33:44
maybe we could see the Kenya shilling move from
33:47
SPEAKER_03: The current level is about 128, 129 to about 143, 145.
33:52
SPEAKER_03: So yes, some pressure, but not as much as we did see in 2023.
33:55
SPEAKER_03: Now,
33:55
SPEAKER_03: when we're looking at inflation,
33:57
SPEAKER_03: we could see local inflation still remain within the target band.
34:01
SPEAKER_03: That's a statutory target band of between 2.5% and 7.5%.
34:06
SPEAKER_03: No significant pressure is expected.
34:09
SPEAKER_03: But that said,
34:10
SPEAKER_03: we have seen some climate change factors feed into not only just Kenya,
34:13
SPEAKER_03: but even globally.
34:15
SPEAKER_03: So those weather related disruptions,
34:17
SPEAKER_03: geopolitical tensions,
34:18
SPEAKER_03: as has been mentioned by how that could disrupt supply chains,
34:22
SPEAKER_03: as well as transport of various goods,
34:24
SPEAKER_03: manufactured goods into Kenya via the Red Sea.
34:28
SPEAKER_03: And this could trigger some pressure, especially on food prices.
34:32
And I anticipate that the central bank will be quite keen and
34:36
alive to these risks.
34:37
SPEAKER_03: And as a result,
34:38
I don't anticipate the central bank will ease monetary policy
34:42
as much into this
34:43
SPEAKER_03: year as they take into consideration what happens with the US Fed.
34:47
SPEAKER_03: Sunil has also mentioned what's going on with bond yields in the UK.
34:50
So the central bank will be less keen on aggressively cutting
34:53
rates as they take
34:54
SPEAKER_03: note of what's happening in the global sphere.
34:56
SPEAKER_03: Sure.
34:57
SPEAKER_03: Now,
34:57
in terms of whether all this will have positive knock-on
35:00
effects to the private sector,
35:01
SPEAKER_03: it's here to be seen.
35:02
SPEAKER_03: I anticipate that, yes, borrowing costs will be lower.
35:05
There has been calls for the commercial banks to lower their
35:09
lending rates,
35:10
SPEAKER_03: but I don't anticipate this will be fast enough.
35:12
Again,
35:13
like I mentioned earlier,
35:14
there has been some scepticism around risk-based lending.
35:18
I will be on the lookout to see whether that will come through
35:20
quite strongly into
35:22
SPEAKER_03: this year and also result in an increase or
35:26
SPEAKER_03: Enhanced growth in private sector credit,
35:28
which is currently in single digits around 4% year-on-year as
35:32
at October last year.
35:33
SPEAKER_03: That's what I'll be looking out for this year.
35:35
SPEAKER_03: Thanks.
35:36
SPEAKER_03: And on the shilling,
35:37
SPEAKER_03: though,
35:38
what gives you confidence the CBK would allow it to get to 140
35:41
from the 129 it's
35:43
SPEAKER_03: been on for the past couple of months?
35:45
At this point,
35:46
you can only do so much in managing what's happening in the
35:49
local front.
35:50
SPEAKER_03: You cannot escape the realities of what's going on in the global front.
35:53
So I anticipate that even for the central bank and the
35:56
government as well to
35:57
SPEAKER_03: instill confidence for investors that,
35:59
SPEAKER_03: yes,
36:00
SPEAKER_03: the market is responsive,
36:01
SPEAKER_03: the market or the shilling is responding to market moves.
36:05
SPEAKER_03: I believe they will allow some leeway.
36:07
if possible,
36:08
to weaken to that level,
36:10
if need be,
36:11
just for that confidence.
36:12
SPEAKER_03: We can't control what is going on outside.
36:15
SPEAKER_03: We need to also instill that confidence for investors,
36:17
SPEAKER_03: especially foreign investors,
36:19
that the market is responding to various events and it creates
36:22
some sort of
36:23
SPEAKER_03: predictability that,
36:24
SPEAKER_03: yes,
36:25
SPEAKER_03: our market is functioning.
36:26
SPEAKER_03: So there's some confidence there that they will allow it,
36:30
SPEAKER_03: if need be,
36:30
SPEAKER_03: to get to that level of 143,
36:31
SPEAKER_03: 145 by the end of the year.
36:34
SPEAKER_03: And CBK, next month, they're having an MPC meeting.
36:38
SPEAKER_03: What would be your suspicion on what they would do?
36:42
From 11.25,
36:44
maybe hold for now as they take a look at what's going on in
36:47
the market.
36:48
SPEAKER_03: Just a hold.
36:48
SPEAKER_03: All right.
36:50
SPEAKER_03: Dixon, over to you.
36:51
SPEAKER_03: Perspectives on 2025.
36:52
SPEAKER_03: What are you watching?
36:53
SPEAKER_02: I think it's more of the same, really.
36:55
For now,
36:56
what is really key is to see how the revenue performance picks
37:00
up from here.
37:01
SPEAKER_02: We know that in terms of funding the government,
37:04
SPEAKER_02: most of the heavy lifting and the H1 was covered through debt issuance.
37:08
H2 is quite key usually on covering the revenue side because
37:12
the performance is
37:13
SPEAKER_02: never evenly distributed.
37:14
SPEAKER_02: It's always weighted more to the H2.
37:16
SPEAKER_02: So we've seen good performance from banks.
37:18
SPEAKER_02: And generally,
37:19
SPEAKER_02: I think from some of the corporates and SOEs who've done well last year,
37:23
SPEAKER_02: I think there could be a pickup on revenues there.
37:25
We want to see whether the interest that's coming down might
37:28
help some of the
37:28
SPEAKER_02: consumption side,
37:30
SPEAKER_02: maybe try and boost some import demand.
37:32
SPEAKER_02: And also,
37:33
as we see the savings coming through from the lower cost of
37:36
debt issuance,
37:37
SPEAKER_02: whether we see a bit more public spending.
37:39
We know that the development expenditure side of the budget has
37:42
been quite limited.
37:43
With the interest rates coming down,
37:45
I think every 1% drop in interest rates.
37:48
I saw someone modeling saying it brings between 100 to 200
37:51
billion in interest cost savings.
37:53
SPEAKER_02: So those savings,
37:54
SPEAKER_02: as they start manifesting,
37:55
SPEAKER_02: as we roll over the debt using cheaper interest rates,
37:58
SPEAKER_02: then could be applied towards developing expenditure.
38:01
That could see some bit of capital goods imports picking up and
38:06
generally that then
38:06
SPEAKER_02: boost revenue slightly.
38:08
SPEAKER_02: What's key I think we have to watch out is the weather.
38:11
SPEAKER_02: Very lucky, I think we've had three seasons now where we had good rains.
38:15
SPEAKER_02: That has anchored inflation and it really helped the growth number,
38:20
SPEAKER_02: at least the headline number,
38:21
SPEAKER_02: to remain robust.
38:22
SPEAKER_02: Without agriculture performance for the last two years,
38:24
SPEAKER_02: I think would have been in a much different scenario.
38:27
And the fact that we are 4% despite agriculture being
38:30
well-performing then tells
38:32
SPEAKER_02: you that we've really fallen back on some bit of a good weather lack.
38:35
SPEAKER_02: We hope that sustains into this year, which will help anchor inflation.
38:39
SPEAKER_02: We've seen a pickup in energy prices globally over the last few weeks.
38:43
SPEAKER_02: I think Brent, I see it, they went above $80 per barrel.
38:47
So obviously it tells you that there'll be some pickup in
38:50
inflation over the next
38:51
SPEAKER_02: few months,
38:51
SPEAKER_02: especially energy pass-through.
38:53
We had a huge boost from the base effects coming from when the
38:56
currency was 1.60,
38:57
which will start fading off in Feb when we had a huge currency correction,
39:01
SPEAKER_02: which then means we would see inflation edging backwards 4%.
39:05
SPEAKER_02: I've seen a few forecasts taking it back to around that level.
39:08
SPEAKER_02: And if we don't see any pickup in food prices,
39:10
SPEAKER_02: if it rains are okay,
39:11
SPEAKER_02: then that should be the level that we would see going forward.
39:15
SPEAKER_02: The current account deficit,
39:16
SPEAKER_02: I think,
39:17
is expected to also slightly pick up again over the same issues
39:21
that I've raised.
39:22
My sense is that banks and the economy will have to extend
39:25
credit to the private
39:26
sector because if there's no incremental borrowed from the
39:29
government between now
39:30
SPEAKER_02: and June,
39:30
SPEAKER_02: the coupon payment pipeline,
39:32
SPEAKER_02: if you look at it,
39:33
Domestic cost of debt that was budgeted and most of that was
39:36
coming in H2 was 700.
39:37
SPEAKER_02: It was about 800 billion on the Kenyan shilling side.
39:41
So all those coupon payments will be coming to the system
39:43
between now and June.
39:44
So investors are going to have a huge reimbursement risk of
39:48
that amount of liquidity.
39:49
SPEAKER_02: And in the absence of any outlet,
39:51
I feel that we have to extend to the private sector in the next
39:54
few months.
39:55
SPEAKER_02: Lack of good borrowers obviously could slow that down.
39:58
SPEAKER_02: But it's always a chicken and egg story.
40:00
Sometimes you have bad borrowers because interests are too high
40:03
and there's no
40:03
demand for credit or the ones you loan to then can't find
40:06
anything profitable that
40:07
SPEAKER_02: they could do to pay the extra higher interest rate.
40:10
SPEAKER_02: If rates were to come down, maybe both of us could solve themselves out.
40:13
SPEAKER_02: Could have more people interested in borrowing.
40:16
And you could also have less defaults and PL side that is
40:19
starting to improve.
40:20
SPEAKER_02: Growth, I think again, will be might be depend on agriculture again.
40:24
SPEAKER_02: We had some drag from the protests last year.
40:27
So hopefully,
40:28
if we don't see another of those,
40:30
maybe you could get back towards the 5.3%.
40:32
SPEAKER_02: That's been touted for 5 to 5.5%.
40:34
It's still not as a medium term as well,
40:38
but definitely better than the 4% we saw for Q3.
40:41
SPEAKER_02: Other than that,
40:42
SPEAKER_02: I think the global picture,
40:43
SPEAKER_02: we have to see what pans out of,
40:45
SPEAKER_02: especially the new administration of the U.S.
40:48
SPEAKER_02: There's been a bit of parallels being mentioned with 2017,
40:51
SPEAKER_02: where market came into other immigration with a very strong dollar.
40:54
But the intricacies of negotiating and passing stuff through
40:58
Congress then means
41:00
SPEAKER_02: that things might not happen as fast as you imagine.
41:04
And the very strong bull case for dollar might not actually
41:07
manifest as people expect.
41:09
SPEAKER_02: There might be that the efficiency move to other government in the U.S.
41:12
then leads to actually lower government spending and some of
41:15
the inflationary
41:16
SPEAKER_02: impulse that the market is anticipating doesn't come through.
41:19
SPEAKER_02: So if that were to happen and if it manifests for 2017,
41:22
SPEAKER_02: then we could actually see the dollar getting softer into H2.
41:25
But for now,
41:26
I think the market is anticipating quite a strong dollar into
41:29
Q1 and into H1.
41:30
SPEAKER_02: That by itself might be a drag towards the emerging market investment.
41:34
SPEAKER_02: So maybe on the offshore investor side,
41:36
SPEAKER_02: we might not see as much as we would have seen last year.
41:39
Also with the prospect of relation gains like Sunil has put
41:43
having diminished,
41:45
SPEAKER_02: then there is less incentive to come and buy our bonds.
41:49
However,
41:49
I still feel that the equity side remains cheap,
41:52
both even historical.
41:53
SPEAKER_02: And I think we could see a bit more flows into that.
41:57
SPEAKER_02: Could be naked or hedged.
41:58
SPEAKER_02: Either way,
41:59
SPEAKER_02: I think there could be some value,
42:01
especially given the still decent dividend users we have seen
42:04
there and the low
42:05
SPEAKER_02: price to book values.
42:07
SPEAKER_03: Over to you, Howie, and then Sunil on Outlook for 2025.
42:12
SPEAKER_03: And especially for you,
42:12
SPEAKER_03: Harry,
42:13
perhaps you can tell us some of the counters that you're
42:14
closely watching as you
42:16
SPEAKER_03: head into this new year.
42:17
SPEAKER_03: At least some of your clients are.
42:19
SPEAKER_01: As Sunil mentioned,
42:20
we do have a bull steepener where the short end is rates are
42:24
falling fast in the
42:24
SPEAKER_01: long end.
42:25
SPEAKER_01: Empirically, this tends to favor the banking sector.
42:28
So I think factoring in the strong capital positions as well as
42:32
you could say hesitancy to lend.
42:34
SPEAKER_01: or extend their loan book,
42:36
SPEAKER_01: I do believe they'll be paying out most of the excess cash as dividends.
42:40
SPEAKER_01: And so we might see payout ratios increase,
42:42
SPEAKER_01: which in turn would result in higher dividend yields at current prices.
42:46
SPEAKER_01: So today most the counters are mostly looking at would be your KTB,
42:51
SPEAKER_01: your equity and your DTB,
42:53
which tend to have relatively lower payout ratios as opposed to
42:59
the other lenders.
43:00
SPEAKER_01: So I think outside from that, we're also looking at Kakuzi.
43:03
SPEAKER_01: Aside from giving you that currency hedge,
43:05
SPEAKER_01: because most of the income is dollar denominated,
43:08
we do believe with Israel's negotiations with Hamas that are
43:12
meant to conclude over
43:13
SPEAKER_01: the next few days could result in the reopening of the Red Sea,
43:17
SPEAKER_01: which I think should be beneficial for the exports to Europe,
43:20
SPEAKER_01: which is their largest market.
43:22
SPEAKER_01: Aside from that, we also like KPLC.
43:24
Technically,
43:25
fundamentally,
43:26
we are seeing quite an improvement in their performance.
43:30
SPEAKER_01: I think as a proxy to KPLC, we are looking at Kenjin.
43:33
I think the improvement in their working capital position
43:36
should be beneficial to
43:38
SPEAKER_01: Kenjin because most of their receivables from KPLC.
43:41
So I think in that Kenjin could also possibly or potentially be
43:45
paying out larger
43:46
SPEAKER_01: dividends over time.
43:47
I think we're well positioned and looking out for opportunities
43:51
as they come.
43:52
I think we currently have a well diversified portfolio of
43:56
holding at any given time,
43:58
we're holding more than 10 different securities and constantly
44:01
trading them using
44:02
SPEAKER_01: both technicals and fundamentals to decide when to enter and exit.
44:06
I think another risk to be aware of is as Dixon mentioned,
44:10
the weather has been favorable.
44:12
And I think currently there's projections that East Africa
44:15
might be faced with
44:16
SPEAKER_01: drought conditions for the first quarter.
44:18
SPEAKER_01: Couple that with increasing sanctions on Russia's oil.
44:22
I don't know if that would result in them restricting their
44:25
fertilizer exports,
44:26
SPEAKER_01: which again should result in higher fertilizer prices,
44:28
which essentially would mean lower crop productivity across
44:33
most economies.
44:34
SPEAKER_01: I think the inflationary factors or pressures are currently
44:38
SPEAKER_01: more pronounced.
44:39
And yeah,
44:39
I think that could be something we're really tracking and to be
44:43
aware of.
44:44
SPEAKER_03: I'm surprised you didn't mention AI.
44:46
SPEAKER_03: Again, it's a market drive.
44:48
SPEAKER_03: Can we do AI at all?
44:50
SPEAKER_01: Oh, we do have AI investments.
44:51
SPEAKER_01: So we like to express our views not directly into AI.
44:55
SPEAKER_01: So our global equity fund does have some holdings that are exposed to AI.
45:00
SPEAKER_01: We do have some companies that do
45:03
help with providing the industrial pipes that are required for
45:06
the water-cooled systems.
45:08
We do have some companies that do provide their backup power
45:12
systems for most of
45:13
SPEAKER_01: your data centers in our book.
45:15
SPEAKER_01: We also do hold some of your chips.
45:17
SPEAKER_01: I think right now chip production,
45:19
SPEAKER_01: or you could say productivity,
45:20
SPEAKER_01: is shifting from US-centric more towards Asia.
45:24
And so we do have some names in Asia we're tracking who stand
45:27
to benefit from this
45:29
SPEAKER_01: increased protectionism around AI technology.
45:33
as well as increased productivity or production within their
45:36
local regions.
45:37
So I think we are well invested in the AI theme and we do have
45:42
our global equity
45:43
SPEAKER_01: fund that primarily invests across systematic portfolios and we have our
45:48
multi-asset strategy that's now more short-term oriented based
45:52
off the macro environment.
45:55
SPEAKER_03: One curious point though, how do you express your market views usually?
45:58
SPEAKER_03: Do you use like derivatives or do you directly invest?
46:02
SPEAKER_01: So more often than not, we're directly investing derivatives.
46:05
Maybe if we see some asymmetric opportunities or risk return
46:09
opportunities is when
46:10
SPEAKER_01: we might use some derivatives or as a hedging tool.
46:14
SPEAKER_01: For instance, right now we had started looking at some energy positions.
46:18
SPEAKER_01: So to hedge that exposure to our energy stocks like ExxonMobil,
46:23
SPEAKER_01: your Shell,
46:24
SPEAKER_01: your British Petroleum,
46:26
SPEAKER_01: we might consider buying some hedges to protect the downside.
46:30
So you might short your oil futures or we might buy puts on the XLE,
46:35
the energy ETF.
46:36
So yeah,
46:37
we do have various mechanisms of expressing our views,
46:40
but it's mostly equities.
46:42
SPEAKER_01: Derivatives on any day, less than about 2% of the entire portfolio.
46:48
SPEAKER_00: So Neil, market views for 2025?
46:51
For 2025,
46:52
particularly on the interest rate front,
46:54
I'm not overly optimistic on the outlook.
46:57
SPEAKER_00: In fact, I'm more cautious.
46:58
SPEAKER_00: One of the data that came through,
47:00
SPEAKER_00: I think,
47:00
late last week was that GDP growth in 2024 for third quarter
47:04
had fallen to 4%.
47:05
SPEAKER_00: This was against 6% at the same time last year.
47:08
SPEAKER_00: Now,
47:08
SPEAKER_00: this is the lowest quarterly growth since first quarter of 2021,
47:12
SPEAKER_00: which I think we'll all recollect.
47:14
SPEAKER_00: That's quite a slowdown in the economy.
47:16
Yes,
47:16
definitely the high interest rate environment would have
47:18
contributed to that.
47:19
SPEAKER_00: But I think it's also a question of business confidence.
47:23
SPEAKER_00: Are businesses reinvest?
47:25
SPEAKER_00: Are people investing in business?
47:26
SPEAKER_00: I see less and less of that at the moment.
47:28
I think there's a perception that this government is not really
47:31
friendly to business.
47:32
I don't know whether the government can reverse that perception
47:35
in the current year.
47:36
SPEAKER_00: Otherwise,
47:36
SPEAKER_00: we will continue to see GDP rates not quite achieving the targets or the
47:41
SPEAKER_00: expectations which have been put out by Central Bank.
47:44
SPEAKER_00: Tax revenues also,
47:45
I think the scope for growth in tax revenues and government
47:49
revenues is now limited.
47:51
I think there's a lot that has been squeezed out from the
47:54
economy and the room to
47:55
SPEAKER_00: squeeze it further is limited.
47:58
So really,
47:58
increase in tax revenue has to come from basically growth in
48:01
the pie.
48:02
SPEAKER_00: And that is not happening.
48:03
SPEAKER_00: That is slowing down.
48:04
SPEAKER_00: It's a difficult situation.
48:05
And the other issue with the tax revenues not increasing at the
48:09
same pace,
48:10
SPEAKER_00: does the government have the intention,
48:12
SPEAKER_00: does it have the will to rein in expenditure?
48:14
SPEAKER_00: is the other big question.
48:16
SPEAKER_00: We saw that when the budget was rejected in June,
48:19
there were a number of expenditure items that were to be
48:21
dropped and there was a
48:22
SPEAKER_00: lot of things which the government said that they would cut back on.
48:25
SPEAKER_00: But all of those seem to be slowly making their way back in.
48:28
Again,
48:28
I think we need to observe what the government is going to do
48:31
this year.
48:32
SPEAKER_00: And really,
48:32
SPEAKER_00: that is what will show us the way forward,
48:35
whether the economy is recovering or whether we are going to be
48:38
limping along for
48:39
SPEAKER_00: the rest of the year.
48:40
SPEAKER_00: So...
48:40
SPEAKER_00: Sorry to be a sort of pessimistic note,
48:43
but I think really it's now up to the government to set the
48:47
tone for a revival of
48:48
the economy and for us to again see faster GDP growth and not
48:53
be stuck at this
48:54
SPEAKER_00: under 5% growth.
48:55
SPEAKER_00: That's my outlook for the year.
48:58
SPEAKER_00: Before you give me your closing thoughts,
48:59
SPEAKER_03: there's a question here,
49:00
SPEAKER_03: one from Derry and one from Justin.
49:03
SPEAKER_03: Justin is asking,
49:04
does the panel expect Kenya to access international markets
49:07
this year for liability management,
49:09
SPEAKER_03: whether Eurobond or the other Panda bonds and all?
49:13
SPEAKER_03: And from there is asking,
49:14
what do the panelists think of the drop in tax collections in
49:17
November when
49:18
SPEAKER_03: compared to the previous year,
49:20
SPEAKER_03: November 2024 compared to 2023?
49:22
SPEAKER_03: And what do you think about Kenya's unemployment rates,
49:25
SPEAKER_03: trends in banking and BLs and the competitiveness of Kenyan companies?
49:30
They're open questions,
49:31
so you can tackle them from whichever angle you want.
49:34
But there's one here which is specific,
49:35
I think,
49:35
for Dixon,
49:36
which I think is more of a no.
49:37
SPEAKER_03: Has any part of the USD $1.5 billion, as was expected from UAE, come in?
49:42
SPEAKER_03: That's one you can answer directly,
49:44
SPEAKER_03: and then the panelists can answer the rest of the other questions.
49:47
SPEAKER_02: Dixon?
49:48
SPEAKER_02: Oh, that has not come through.
49:49
SPEAKER_02: I think there was a bit of discussion surrounding that.
49:52
I think they were trying to plug that in as a last bit after
49:56
the last review from
49:57
SPEAKER_02: the IMF,
49:58
SPEAKER_02: I think,
49:58
SPEAKER_02: and the World Bank.
49:59
SPEAKER_02: I think the balancing number was supposed to be that.
50:01
Media reports we've seen that they split that into this fiscal
50:04
year and into the
50:05
SPEAKER_02: next fiscal year.
50:06
SPEAKER_02: Ideally,
50:07
SPEAKER_02: the balance of what they do this year,
50:09
SPEAKER_02: what they do last year,
50:10
SPEAKER_02: I guess,
50:11
and next year is that maybe that's what they're trying to see
50:14
and come to that conclusion.
50:15
SPEAKER_02: On the revenue side,
50:16
SPEAKER_02: I think generally,
50:17
SPEAKER_02: look,
50:18
SPEAKER_02: this year,
50:19
SPEAKER_02: especially Q3,
50:21
SPEAKER_02: given the outcomes we've seen from the economic side is from dairy.
50:25
I think it's understandable why we've seen the sort of
50:28
flatlining revenues.
50:30
SPEAKER_02: We did not have an impulse from the inflation side,
50:32
SPEAKER_02: inflation being the lows at 2% year on year by December.
50:37
SPEAKER_02: Usually just on an inflation basis,
50:38
SPEAKER_02: if inflation was close to 10%,
50:40
SPEAKER_02: you'd have seen that pick up in nominal spending,
50:42
SPEAKER_02: which then translates to slightly higher taxes.
50:44
SPEAKER_02: Inflation was quite low.
50:45
SPEAKER_02: And you've seen the growth numbers coming through.
50:47
SPEAKER_02: And if you shift through that and watch it strip out agriculture,
50:50
SPEAKER_02: then there wasn't that much growth.
50:52
SPEAKER_02: So the numbers in November, you know, seems understandable.
50:55
And especially if you consider the fact that the public sector
50:58
spending also still
50:59
remain constrained with government really rushing to plug the
51:02
gaps on delayed payments,
51:04
delayed disbursements that are seen in the first few months of
51:07
the fiscal year.
51:08
SPEAKER_02: Looking forward, I think the jury's out.
51:10
SPEAKER_02: We have the taxes.
51:11
SPEAKER_02: There are who are instituted with a new finance bill.
51:14
We call them appropriations and spending bills that were just
51:16
signed as opposed to
51:17
SPEAKER_02: what would have been signed in June and July.
51:20
SPEAKER_02: Maybe that will give some sort of push.
51:22
SPEAKER_02: How would that number look?
51:24
SPEAKER_02: I am not really sure.
51:25
I think we have to wait for the next estimate on the
51:27
supplementary budget that will
51:28
SPEAKER_02: come through for us to have a picture.
51:30
But I do expect there will be some small pickup into this half
51:33
compared to the first half.
51:34
SPEAKER_02: Simply because we do have slightly higher taxes,
51:37
SPEAKER_02: we have more taxes that have come in the stream.
51:40
And I think the sort of fact we had last half of the year has
51:43
reduced a little.
51:44
SPEAKER_02: I can pass on the other question to the rest of the panelists.
51:47
SPEAKER_03: Anyone wants to tackle some of the other questions that were raised?
51:50
SPEAKER_00: In terms of international markets,
51:52
SPEAKER_00: whether we would return to the international markets,
51:54
SPEAKER_00: I don't see a euro bond being issued in the current year in 2025.
52:00
I think it's going to be more multilateral or bilateral kind of
52:03
borrowing that the
52:04
SPEAKER_00: government would do.
52:05
SPEAKER_00: So again,
52:06
SPEAKER_00: like this UAE was one example,
52:08
SPEAKER_00: which is a bilateral debt plus,
52:09
SPEAKER_00: of course,
52:10
SPEAKER_00: the support from IMF and World Bank.
52:12
SPEAKER_00: I think that's the kind of foreign borrowing that we would see.
52:15
SPEAKER_00: I do not expect a market issue like a euro bond during the current year.
52:20
SPEAKER_00: In terms of tax collections, I think Dixon did address that.
52:24
And I think I also spoke about it earlier that we seem to be
52:27
reaching the maximum
52:28
capacity that can be drawn from the current business
52:31
environment in terms of taxation.
52:33
And really,
52:34
unless the GDP grows,
52:35
the room to grow taxation much more is going to be limited.
52:40
SPEAKER_00: I agree too.
52:40
SPEAKER_00: Any other thoughts?
52:41
SPEAKER_01: Yeah,
52:41
SPEAKER_01: just to mention,
52:42
SPEAKER_01: I think NPLs,
52:43
SPEAKER_01: yeah,
52:44
SPEAKER_01: the trend,
52:44
SPEAKER_01: we do expect the trend to at least start to decelerate over time.
52:48
I think it's a case that the government might prioritize
52:51
pending bill payments
52:52
SPEAKER_01: going into an election period.
52:54
And so I think that will be the transmission mechanism or their
52:58
fiscal support
52:59
SPEAKER_01: program into next year.
53:00
SPEAKER_01: So I think we might see some recovery in those NPLs going forward.
53:05
SPEAKER_01: You are more optimistic.
53:06
There's also the lag between the reduction in rates and
53:09
actually when they land in
53:11
SPEAKER_03: the interest payments of the business and their consumer.
53:14
SPEAKER_03: Don't you think that's a bit of a worry though?
53:16
SPEAKER_03: Because I think towards the end of last year,
53:17
SPEAKER_03: there was a bit of pressure from CBK to banks to lower rates,
53:20
but then reduction of 100 basis points may not be that
53:24
significant to someone
53:25
SPEAKER_03: paying 26,
53:27
SPEAKER_03: 25% rates of interest to banks.
53:30
SPEAKER_03: Any thought to help?
53:31
SPEAKER_01: Yeah, that's true.
53:32
SPEAKER_01: Again, I think that's one of the risks to be quite aware.
53:35
SPEAKER_01: I think there's an invisible hand currently within the space.
53:38
SPEAKER_01: So it might not necessarily be positive to their bottom line, all in all.
53:43
But I think in terms of just their balance sheet strength or
53:47
their solvency status,
53:48
SPEAKER_01: I think at least we could see some NPLs get recovered,
53:53
SPEAKER_01: especially those needs to the government.
53:54
SPEAKER_01: So your KCB, your equities, your large corporate lending entities.
54:00
SPEAKER_03: Time for clapping thoughts.
54:02
SPEAKER_03: I'll start the same way.
54:03
SPEAKER_03: I started with Steph and then Harry, Sunil, and then Dixon.
54:06
SPEAKER_03: Steph, any clapping thoughts?
54:08
SPEAKER_03: Something you should talk often too, but you may agree.
54:11
A lot has been said actually,
54:12
and Dixon has added quite a bit of value to the conversation.
54:16
SPEAKER_03: Now, for my thoughts into 2025, it's a mix.
54:18
And like I said,
54:19
we're in a colicky state,
54:21
holds promise,
54:22
but we need to be very cautious.
54:24
SPEAKER_03: And a lot,
54:25
SPEAKER_03: I believe,
54:26
of how 2025 will perform will be on how the government is able
54:31
to manage sentiments
54:33
SPEAKER_03: towards its own fiscal policy,
54:35
SPEAKER_03: as well as on the general political landscape.
54:38
So I believe that would be ideal for the government to focus on
54:42
how they manage
54:43
SPEAKER_03: those sentiments moving forward,
54:44
because it's going to ultimately determine how businesses will
54:48
reinvest and invest
54:50
SPEAKER_03: moving forward and thus support overall growth conditions.
54:53
SPEAKER_03: And also various uncertainties, both globally and locally.
54:57
SPEAKER_03: Now,
54:58
SPEAKER_03: when you look at the global sphere,
54:59
how the central bank tries to align its policies to what we're
55:03
seeing globally,
55:03
SPEAKER_03: where U.S.
55:04
policy rates,
55:05
for example,
55:06
may not decline as fast as we anticipated before.
55:09
SPEAKER_03: Given other indications,
55:11
SPEAKER_03: also the current regime,
55:13
the Trump administration may not be as favorable or welcoming
55:16
to certain developing
55:17
SPEAKER_03: economies like ourselves.
55:19
So we need to look at other sources or access to other
55:22
financing abroad and ease of
55:25
SPEAKER_03: that pressure locally.
55:26
SPEAKER_03: There's a lot that we need to look out for.
55:27
SPEAKER_03: But for me specifically is on how the government is able to manage.
55:31
SPEAKER_03: sentiments and investor confidence moving forward.
55:34
SPEAKER_03: Because the key driver of this economy is the private sector.
55:36
SPEAKER_03: Whether it's foreign or local, it is the private sector.
55:40
SPEAKER_03: They contribute 70% to GDP.
55:42
So it will be important for them to be able to manage those
55:45
sentiments and
55:45
SPEAKER_03: confidence moving forward.
55:46
SPEAKER_03: Thanks.
55:47
SPEAKER_03: Howie, then Sunil.
55:49
SPEAKER_01: In light of the pessimistic tone across the board,
55:52
SPEAKER_01: I think when it comes to equity positioning,
55:54
I think this could be the year where utilities do provide you a
55:58
favorable risk return,
55:59
SPEAKER_01: both due to the recurring or predictable stream of revenues,
56:03
SPEAKER_01: as well as at least the improved management.
56:07
SPEAKER_01: We do still see banks, at least some banks are forming going forward.
56:12
SPEAKER_01: And in the global markets, we do see a flurry of opportunities.
56:16
SPEAKER_01: We still see opportunities within the banking space.
56:19
I do think some of this geopolitical tensions should be
56:22
beneficial for some of your
56:24
SPEAKER_01: commodity-driven economies,
56:26
SPEAKER_01: such as your Congo and Tanzania.
56:28
SPEAKER_01: And so we do see some of our banks with exposure towards those regions,
56:32
SPEAKER_01: benefiting from that increased activity.
56:35
SPEAKER_01: Again, even your protectionist policies should drive more.
56:39
bilateral trade agreement between these commodity producing
56:43
nations and your
56:45
SPEAKER_01: developed economies.
56:46
SPEAKER_01: So outside of that, on global markets, we want to remain quite agile.
56:51
And we're still looking at some of the ways to express this AI
56:55
themes and sectors
56:56
SPEAKER_01: that start to benefit.
56:57
SPEAKER_01: I know we started with the picks and shovels,
57:00
SPEAKER_01: but now we are moving more towards your software beneficiaries.
57:04
SPEAKER_01: And we do have our Avocap funds, which are professionally managed.
57:10
We have our active management strategies using both
57:14
fundamentals and technicals to
57:16
SPEAKER_01: help us take positions.
57:18
And I think we are going to a time where there's going to be
57:20
increased volatility.
57:22
So it will be beneficial for most investors to consider
57:25
professional active
57:27
SPEAKER_01: management for their portfolios.
57:28
So I do think this is a time to be active,
57:31
more active when it comes to portfolio management.
57:34
SPEAKER_03: Thanks, Javi.
57:35
SPEAKER_03: Sunil, maybe you can give us your closing thoughts now.
57:38
SPEAKER_00: I think I was a little bit negative or a bit pessimistic.
57:42
SPEAKER_00: Look, let me try and end on a little bit of a positive note.
57:46
So firstly,
57:47
on the exchange rate,
57:48
I think the central bank did very well in 2024.
57:51
I think they ditched some of the disastrous policies that had
57:53
been followed recently.
57:55
SPEAKER_00: 22,
57:55
SPEAKER_00: 23,
57:55
SPEAKER_00: which while so-called the exchange rate was not depreciating,
58:00
but we basically were down to rationing of the foreign exchange
58:04
to $5,000 and
58:05
SPEAKER_00: $10,000 a day.
58:06
So I think the CBK did very well in removing those kinds of
58:09
controls that were
58:10
SPEAKER_00: artificially imposed on the market.
58:12
And I hope that they will continue with letting the market
58:15
really determine the
58:16
SPEAKER_00: exchange rate largely.
58:17
SPEAKER_00: And if they do want to have a guidance on the exchange rate,
58:20
SPEAKER_00: then they do it as a market participant either by the
58:23
SPEAKER_00: buying dollars or by selling dollars.
58:25
SPEAKER_00: And I do,
58:26
SPEAKER_00: I agree with,
58:27
I think Stephanie's thought that the rate would go to roughly
58:30
around the 140 level
58:31
SPEAKER_00: during the year.
58:32
And hopefully that will be quarterly if it is about to go by
58:36
normal market participation.
58:38
The other positive aspect I thought I'd highlight in terms of
58:42
the bills and bonds,
58:43
SPEAKER_00: I think sometime in 2023,
58:45
SPEAKER_00: in the second half of 2023,
58:46
SPEAKER_00: the central bank introduced something called the Dow CSD system.
58:51
And those who have been investing in bonds and treasury bills
58:56
would by now be
58:56
SPEAKER_00: familiar with the system.
58:57
SPEAKER_00: So I think this was a big improvement from what old system,
59:01
SPEAKER_00: the CDS system,
59:03
SPEAKER_00: which the central bank had,
59:04
SPEAKER_00: which required a lot of manual intervention,
59:06
required personal visits to central bank to open the account
59:09
and a lot of manual work.
59:10
I think we are seeing the benefits of it in terms of more and
59:13
more individual
59:14
SPEAKER_00: investors investing directly in treasury bills and treasury bonds.
59:18
SPEAKER_00: I think from 2022,
59:19
when there was about the non-institutional investors holding
59:22
about 6.4% of the
59:24
SPEAKER_00: issued securities,
59:26
SPEAKER_00: this has gone up to over 13% as at the end of 2024.
59:29
SPEAKER_00: So I think that's a very good move that the CBK did.
59:33
SPEAKER_00: It's a very good system.
59:34
SPEAKER_00: And I mean,
59:35
SPEAKER_00: those of you who have invested through the CDS system,
59:38
SPEAKER_00: through the DAO system,
59:39
SPEAKER_00: should definitely try it.
59:40
SPEAKER_00: It's very easy to open the account, easy to operate.
59:43
SPEAKER_00: And of course,
59:44
there are people around to give you guidance if you need in
59:47
participating in that.
59:48
I think that is one thing that will,
59:51
again,
59:51
tend to moderate any rate increases that we see.
59:55
SPEAKER_00: If we see those during this kind of half of the year,
59:56
there will be direct investor participation in the treasury
59:59
bills and treasury bonds.
1:00:00
SPEAKER_00: I think I'll leave that as my closing thoughts.
1:00:03
SPEAKER_03: Thank you, Sunil.
1:00:04
Thank you,
1:00:05
Howie and Stephanie,
1:00:06
and also to Dixon,
1:00:08
who also managed to join us towards the end.
1:00:10
SPEAKER_03: Thank you for those perspectives.
1:00:11
SPEAKER_03: I hope investors are well informed.
1:00:14
SPEAKER_03: We'll continue to have more Twitter spaces as the year progresses.
1:00:17
SPEAKER_03: There's something that Sunil mentioned,
1:00:18
SPEAKER_03: the Dow CSD,
1:00:19
SPEAKER_03: a very good one to use to invest in government bonds.
1:00:23
I have tried it and it's actually very,
1:00:25
very simple in terms of the way to invest.
1:00:27
SPEAKER_03: And of course,
1:00:28
Howie is around here from Avocap to help us throughout the Q1
1:00:31
to be able to analyze
1:00:33
SPEAKER_03: some of the content that we come across in markets and all.
1:00:36
So Sunil and Howie,
1:00:38
I want to give you a chance to tell people where to find you
1:00:41
before I close.
1:00:41
SPEAKER_03: Sunil asks perhaps, where do people find if they want more information?
1:00:46
SPEAKER_00: Well,
1:00:47
SPEAKER_00: I guess since we are doing this on Twitter on X,
1:00:49
SPEAKER_00: as it's now called,
1:00:50
the best thing is drop me a message or a DM on Twitter and then
1:00:55
we connect.
1:00:56
SPEAKER_00: We have our offices in Westlands in the address.
1:00:59
SPEAKER_00: And of course,
1:01:00
SPEAKER_00: once we've connected,
1:01:01
SPEAKER_00: we would be happy to meet up in person as well to discuss further.
1:01:04
SPEAKER_00: Thanks.
1:01:05
SPEAKER_03: Howie, where can people find you?
1:01:07
SPEAKER_01: Thank you, Howie.
1:01:08
SPEAKER_01: I'm a research analyst at Avocup.
1:01:11
SPEAKER_01: You can also send us a DM.
1:01:13
SPEAKER_01: We have our website.
1:01:15
SPEAKER_01: We have our app.
1:01:16
SPEAKER_01: You can download it on the Play Store.
1:01:18
SPEAKER_01: And we look forward to welcoming you to our suite of funds.
1:01:22
SPEAKER_01: We think we do have the widest range of products in the market.
1:01:27
And I think this is a year of really capturing opportunities or
1:01:31
at least avoiding risk.
1:01:32
SPEAKER_01: So we welcome you to join us.
1:01:35
SPEAKER_03: Thank you all.
1:01:36
SPEAKER_03: Let's call it an evening.