September 2024 Market Wrap-up Report

1. MONEY MARKET FUNDS

Money Market fund rates declined slightly in September, with the average daily effective rate falling to 14.48% compared to August’s return of 14.60% p.a. The decline can be attributed to a corresponding drop in the returns on Treasury Bills (T-bills).

T-bills are a primary asset class in which money market funds invest due to their low risk and short-term nature. When T-bill rates fall, the returns for MMFs typically follow suit because the income generated from these government securities is a significant component of the MMF’s overall yield.

In terms of performance, The Lofty Corban Money Market Fund maintained its leading position for another month, posting an average daily return of 16.80% per annum, translating to a net return of 14.32% per annum after tax.

Cytonn, Etica, Arvocap, and Kuza Money Market Funds followed closely, with daily average effective rates of 16.72%, 16.21%, 16.04%, and 15.73% per annum, respectively.

A Money Market Fund is useful if:

1. You are just starting your investment journey: it’s a good way to start accumulating your savings and investment goals to diversify to other asset classes.
2. You are looking to pack some money away for a later date project.
3. You are building up your emergency fund.
4. You are saving for a sinking fund like school fees, insurance payments, or asset purchases.
5. You are in a chama/investment group: a few fund managers have a chama manager that can help you track the chama contributions and transactions.

Daily Average Yields for MMFs in September

Dollar Money Market Fund Returns

For the Dollar Money Market Funds, Kuza MMF USD fund secured the top position with an average return of 6.86%, followed by Etica, Lofty Corban, Jubilee and Dry Associates which posted daily average returns of 6.76%, 6.32%, 6.30%, and 6.28% per annum, respectively.

Fixed Income Funds

The Kuza Fixed Income Fund delivered an impressive return of 15.09% per annum, followed by Madison, Etica, Nabo, and Zimele Fixed Income Funds, which recorded average daily effective returns of 14.80%, 14.66%, 14.08%, and 13.43% per annum, respectively.

Special Funds

In the Special Funds category, the Lofty Corban Special MMF led the rankings with a return of 16.50% p.a.

2. GOVERNMENT BONDS

According to data from the Central Bank of Kenya, the interest rates on the 91-day, 182-day, and 364-day Treasury bills have fallen steadily since the beginning of August 2024 which consequentially led to the general decline in interest rates over the various asset classes above.

Analysts at AIB-XYS attribute the decline to the CBK’s resolve to nudge interest rates lower amid an easing risk landscape. The decline can also be a result of increased liquidity. As liquidity increases, driven by factors like higher foreign remittances, improved government spending, and reduced private-sector borrowing, banks have more funds to lend, leading to increased competition and lower loan rates.

Additionally, inflation in Kenya fell to 3.6% in September from 4.4% in August 2024, preserving the real purchasing power of money. This reduction in inflation allows the Central Bank of Kenya (CBK) to lower interest rates without causing inflationary pressures, making borrowing cheaper and encouraging investment and consumption, which supports economic growth.

In September, the Central Bank of Kenya (CBK) accepted bids worth KES 32B over and above the advertised amount of KES 15B for the tap sale of IFB1/2023/17. Additionally, the Government re-opened two Fixed coupon bonds (FXD), FXD1/2024/010 (remaining 9.5 years) and FXD1/2016/020 (remaining 12 years) aiming to raise KES 30 billion. The re-opened bonds have fixed coupon rates of 16.00% and 14.00%, respectively, and accepted bids totalling KES 19.27 billion, resulting in an undersubscription.

Particulars of the Bonds

3. EQUITIES

In September, the Kenyan stock market experienced an upward trend, with the NSE 20 gaining 5.8%, NSE 25 rising by 3.5%, NASI increasing by 3.6%, and NSE 10 advancing by 3.9%. This positive performance was primarily driven by gains in large-cap companies such as KCB, Equity, and Safaricom, which saw increases of 11%, 8%, and 3%, respectively.

As at the end of September, foreign investors exhibited a bearish sentiment towards select blue-chip stocks, leading to a net outflow of USD 0.11 million for the month.

4. GLOBAL MARKETS

a) United States:

• Equities: Entered September on a high note after recovering from an 8.5% pullback in the S&P 500, with the index closing just 0.13% shy of its all-time high.
• Economic Data: U.S. growth concerns emerged, driven by the unwinding of the yen carry trade. Despite these factors, the S&P 500 ended the month up 21% year-to-date, and the Nasdaq gained 22.7%.
• Sectors: Tech stocks led the recovery, while financials and consumer staples remained under pressure.

b) Eurozone:

• Equities: The Stoxx Europe 600 hit a record high, posting a year-to-date return of 10.36%.
• Economic Data: Eurozone inflation slowed to a three-year low of 2.2% in August. Concerns rose around the German and Italian economies, with industrial output declining.
• Sectors: Energy and real estate sectors saw gains, but manufacturing struggled, particularly in Germany and Italy.

c) UK:

• Equities: Market fell, partly buoyed by the pound’s strength following the Bank of England’s decision to hold off on a second rate cut.
• Economic Data: Headline CPI held steady at 2.2%, while core inflation rose to 3.6%. Service inflation increased, with wage growth also showing an uptick.
• Sectors: Consumer discretionary and real estate underperformed.

d) Japan:

• Equities: The Nikkei 225 gained nearly 3% in September.
• Economic Data: Consumer prices rose 3% year-on-year, marking the highest level since October 2023. The yen strengthened, narrowing the interest rate gap after the BOJ raised rates to 0.25%.
• Sectors: Domestically focused stocks performed well, while growth stocks faced more pressure.

e) Asia (ex-Japan):

Equities: Declines across major markets.

• China: CSI 300 and Hang Seng posted strong gains of 15.7% and 13%, respectively, following stimulus announcements.
• Other Regions: South Korea, Taiwan, and Hong Kong experienced sharp declines amid weak manufacturing and property sector issues.