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November 21, 2018

The shilling may be the world’s most stable currency today

The Kenyan Coins .Photo Elkana Jacob
The Kenyan Coins .Photo Elkana Jacob

The shilling has exhibited extreme alpha and, in fact, is probably the most stable freely traded currency not only in Africa, but in the World. I was talking to Sheila M'Mbijjewe [The Central Bank of Kenya Deputy Governor] and she noted that if we stripped out food inflation, the inflation basket will soon turn negative. Government of Kenya bond yields are set to enter a sweet spot as food inflation turns lower and Investors seek to snap up double digit yields which hold up when translated into hard currency yields [because of the stability of the shilling]. The stock market has been on a tear with the Nairobi NSE20 Index +29.90% since its January 30's low. However, stock market's investors are increasingly looking as if they are looking to take some chips off the table and book some gains.

Bloomberg headlined a story Friday ''Murder Part of Drama at Kenya Sugar Miller Up 50% in a Month'' and the first paragraph reads: “The company’s chief executive has fled the country. Its legal officer was killed in an unsolved murder case. Operations are shut for three months for maintenance and mounting losses mean it needs a bailout from the Kenyan government.”

So why has Mumias Sugar’s stock surged 50 per cent over the past month on the Nairobi Stock Exchange?

With our noses pressed up against the general election, Mumias Sugar story is as loud a signal as it gets, time to book your profits.

African stock markets are up sharply. The Nigerian All Share rallied +39.84% from March 6 through June 20 [now reversing]. The Nairobi All Share has surged +29.234% since March 8. The rand, which is hovering around the 13.00 level versus the dollar, is seemingly much more resilient in the face of some serious ''Zupta'' shenanigans.

Big things are popping all over the financial world. The Kingdom of Saudi Arabia decapitated its Crown Prince and appointed a 31-year-old MBS [who allegedly while on holiday liked a yacht, cut a cheque for $550m (Sh56.99 billion) on the spot and threw the owner ''overboard''] and is surely plotting an incision into Doha and a regime change. The oil price has actually fallen since, which is counterintuitive. Former American journalist Edwin Lefevre said ''The Tape is your Telescope'' and in matters crude oil, the recent price action continues to signal we are in uncharted and disjunctive territory. I am forecasting a slump towards $32.00 (Sh3, 316) which will be a catalyst for a serious crisis and in the order of magnitude of the 2008 financial crisis. These folks did not end their party, they just gorged on credit and now their lenders are set to come knocking. The end is indeed nigh. US President Donald Trump continues to stay a step ahead of the 'Manchurian Candidate' charge, but consider how much uncertainty this charge has imported. Make no mistake, Russia intervened. Yes it was non-linear, but it was a substantive intervention and to be frank President Obama choked. The once ''sick man'' of Europe has got its mojo back with the wizardry of French President Emmanuel Macron changing the European narrative via an ''abracabradabra'' type magic trick. Over in the East, China has now secured and militarised its Islands and the Pivot to Asia is as dead in the water as is Osama Bin-Laden. As America considers an infrastructure plan, China has rolled out its OBOR [One Belt One Road] initiative across this 21st century world of ours and you will note that the destination of OBOR is Beijing. All the roads and railways lead to one destination, P resident Xi Jinping's Beijing. Interestingly, the markets are curiously becalmed with volatility at multi-year low, doused by lashings and lashings of liquidity. However, in curious and esoteric corners of the financial world, we witnessed some extraordinary price moves. For example, last week, Ethereum [a crypto-currency] briefly crashed from $319 to 10 cents in seconds on one exchange.

Against this developed markets backdrop, cash has flown back into the BRICS. Bloomberg reported that non-resident portfolio flows into BRICS nations rose to $166.5 billion (Sh17.25 trillion) last month, up from $28.3 billion (Sh2.93 trillion) in outflows 12 months prior, according to data compiled by the Institute of International Finance and EPFR Global. We saw a spill-over of this liquidity into African markets around Q2. For example, Mozambique's Eurobond [defaulted] is the best performing sovereign Eurobond in the world this year. Liquidity pumped up demand for recently issued sub-Saharan Africa's Eurobonds, and if I were a Sub-Saharan Finance Minister, I would be asking the Eurobond market: ''What's your size [of demand]?''

If they said like they did to Senegal, our size is $9.3 billion [Senegal received $9.3 billion (Sh963.76 billion) worth of orders for their recently issued $1.1 billion (Sh113.99 billion) worth of Eurobonds], then I would be saying: “You are filled for the entire amount $9.3 billion because this moment will not return.”

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