Big numbers, big words, small change

Guess who's back? No? It's the CBK governor and he's bagged an award in less than a year in office — refer to a shilling currency chart. Meanwhile, the jabber surrounding Kenya's currently least popular document reached a crescendo as public participation on it came to a close — but not before accountants chimed in. Banks are still making...bank, and so are asset managers (but maybe not stockbrokers).

This one may feel like the 'jargon edition' but there's something for you at the end to make it all make sense.

But first, here are the main stories in Investing this week:

• More voice concerns over budget
• NSE registers record turnover on block trade
• May sees marginal rise in inflation

SPOTLIGHT

Accountants share their two cents (on a budget)

The Finance Bill 2024 [download] remained a hot topic in the week as consumers and business owners continued to voice dissatisfaction with new tax measures introduced in support of the government's austerity.

What happened

Institute of Certified Public Accountants of Kenya (ICPAK) made a Submission on the Finance Bill 2024 [download] sharing proposals for the Treasury's consideration, most notably around a wider tax base, sealing tax leakages & implementing a national tax policy to bring about a stable tax environment.

Between the lines

According to ICPAK, failure to broaden the tax base has caused the Kenya Revenue Authority (KRA) to consistently miss revenue targets.

“Kenya has continued to place reliance on a small pool of taxpayers, largely drawn from the formal sector,”-ICPAK

The institute identified complicated tax systems, discretionary power on exemptions, and a culture of corruption as key contributors to revenue leakage.

Should you care?

Whether you're actively investing or not, the budget will impact you and your money and investments. Awareness of the contentious issues is paramount as you could be affected in multiple ways once the bill is signed into law.

HEADLINES

The week's big stories

• More voice concerns over budget. The Kenya Association of Manufacturers (KAM) called tax proposals in the Finance Bill 2024 “unreasonable” and “overburdening” to taxpayers. KAM CEO Anthony Mwangi fears there will be more business closures and a shift to neighbouring countries for essential services if the proposals pass. Will public participation sway this government?
• NSE registers record turnover on block trade. The sale of 167.7 million I&M Group Plc shares through the Block Board on Thursday resulted in the NSE's highest single day equity turnover of KES8.8 bn. In November 2023, the British International Investment Plc announced the sale of its shares in I&M Group to East African Growth Holding subject to regulatory approvals. Learn more about Block Trades in today's Insight feature.
• May sees marginal rise in inflation. Inflation marginally rose to 5.1% from 5.0% in April. KNBS attributed the rise in prices mainly to commodities under transport (8.1 per cent), food and non-alcoholic beverages (6.2 per cent), and housing, water, electricity, gas, and other fuels (4.4 per cent) between April and May 2024. The May rise is the first since January, which ends a 3-month run of disinflation to (i.e. a falling inflation rate). No major surprises & overall rate within CBK range.

INSIGHT

Explained by AI (and I): Block trades

Definition

A block trade is a large transaction, typically involving a substantial number of securities, executed outside of the open market to avoid impacting the security’s price significantly. These trades are usually conducted by institutional investors, such as hedge funds, mutual funds, or pension funds, which need to buy or sell large quantities of securities without causing dramatic price movements that can result from executing large orders on public exchanges.

Significance

Here are the key points to know about block trades:

1. Size and execution: Block trades usually involve tens or hundreds of thousands of shares, arranged privately between parties or through specialized brokerage desks to maintain discretion.
2. Market stability: By executing large trades privately, block trades help prevent dramatic price movements and maintain market stability, avoiding the volatility that large public orders can cause.
3. Efficiency and confidentiality: They offer a more efficient way for institutional investors to move large positions without delay or price slippage and keep their trading strategies confidential.

Application

The NSE last year amended its trading rules to accommodate block trades, aiming to boost market liquidity. At the NSE, block trades constitute the sale of shares whose value:

1. exceeds KES 3 billion, and constitutes between 5% and 24.99% of the company's total issued shares; or
2. is less than KES 3 billion, but constitutes between 15% and 24.99% of the company's total issued shares.

The amendments also provide for more flexible pricing of block trades allowing for a 30% price range based on a one-month average. The NSE reports block transactions as 'off-market transactions', except for their impact on the total market turnover.

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Block trades are essential for managing large-scale transactions discreetly, promoting market stability, efficiency, and confidentiality for institutional investors. Understanding this will help you navigate the markets better.

PAUSE

ROUNDUP

Other news

• In the first 5 months of 2024, total turnover traded stood at KES 64.67mn, already 0.6% higher than the KES 64.28mn traded in the 12 months of 2023. NSE launched NEXT in July 2019 to become the second exchange in Africa to offer Exchange Traded Derivatives. Positive, but uptake of derivatives still painfully slow.
• The National Treasury and the NSE, the founding shareholders of the Kenya National Multi Commodities Exchange (Komex), are looking to raise KES 1.5bn in equity from institutional investors to operationalize the exchange. Komex will develop, operate & manage a demutualized exchange for agricultural & non-agricultural commodities and more.
• Fresh data from the CMA Q1 Statistical Bulletin [download] shows that assets under management in local CIS’s rose to KES 225.4bn in March from KES 215.1bn in December 2023. Lofty-Corban Investment is the latest fund manager to cross the KES 1bn mark in AUM. New entrants in the industry have leveraged technology and low entry thresholds to drive greater retail participation while taking the fight to legacy fund managers.

One-liners

• Stockbrokers’ survival hangs by a thread as NSE suffers listing drought [Business Daily]
• Jubilee in record Sh1b dividend payout after posting 16pc profit [The Standard]
• Standard Chartered Kenya Q1 Profit up 39.5% to KSh 5.62bn [Kenyan Wall Street]
• Absa profits up 34% despite spike in bad loans [The Star]
• World Bank Approves $1.2Bn Loan to Kenya [Kenyan Wall Street]
• Thugge named Africa's top Central banker [The Star]

REGION

What in the East Africa?

[UG] MTN announces secondary share sale to boost local ownership. [Nile Post]

[UG] Govt to borrow more as Uganda national debt rises to Shs 93tn. As of December 2023, Uganda's national debt grew to $24.60 billion (about Shs 93.38 trillion). External public debt accounted for $14.64 billion (Shs 55.37 trillion) while domestic debt was $9.96 billion (Shs 38.01 trillion), according to the public debt sustainability analysis conducted in December. Finance Minister Matia Kasaija says more borrowing is necessary to fund the budget, though it needs to be prudent.  [The Observer]

[TZ] Capital markets investment value up by 23pc. [Daily News]

[TZ] Tanzania drums for more low-income-centred mutual funds. The government has launched a collective investment scheme that targets the low-income bracket. The Timiza Fund, introduced by Zan Securities is the first private sector mutual fund and the third in the market. The fund introduction by a private player symbolises the government’s tireless efforts to widen the participation of society in financial products, making the sector equally accessible to all walks of life. [Daily News]

[RW] RSSB to launch Rwf30bn equity investment facility for SMEs. [New Times]

[RW] Why Rwanda’s central bank lowered benchmark rate. The National Bank of Rwanda (BNR) lowered its key interest rate by 50 basis points to 7% from 7.5%, noting that inflation was projected to remain within its target band at around 5% this year and in 2025. In the Q1, 2024, headline inflation decelerated to 4.7% from 8.9% in the previous quarter, thanks in large part to declines in core and fresh foods inflation that offset an increase in energy inflation. [New Times]

CURIOUS

Two good not to share

One: Whenever I’m putting together an edition of this newsletter, I pay much attention to my choice of words given the wide audience that receives it and the perceivably ‘hard’ topic that it addresses. I’m learning how to simplify technical terms & ideas to help readers make better investment decisions over time as I share some of the knowledge that I picked up through years in the investments industry. Here's a quick masterclass by Alan Alda, on choosing words.

Two: A few words before I disappear...

“My Brain is the key that sets me free.”

-Harry Houdini

I hope you enjoyed this edition as much as I did (not because of the jargon) and got to this end a feeling little better than you started. If you did, share the highlight with a friend. And remember, big words aren't always shady. Bye for now.

Have the best week possible.

Yours truly.

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