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Market Commentary

Key Features

Fund Manager

CIC Asset Management Ltd

Launch Date

Jun - 11

Risk Profile

Moderate

Trustee

Kenya Commercial Bank

Custodian

Co-op Custodial Services

Auditors

PWC

Minimum Investment

Ksh 5,000.00

Minimum Additional Investment

Ksh 1,000.00

Initial Fee

1.50%

Annual Management Fee

2.00%

Distribution

Semi-Annual

Who should invest?

Investors who are seeking ;

  • Typically ready to invest over the medium to long-term.
  • Need extra returns at moderate risk.
  • Seek a reasonable return from a well diversified portfolio of fixed income securities.

Asset Allocation

GDP
7
Economy Growth
In 2021

The economy expanded by 7.5% in 2021 buoyed largely by rebounds in most economic activities from the contractions in 2020. Major growth drivers included ser- vices (65.1%), education (21.4%), financial & insurance (12.5%) and manufacturing (6.9%). Kenya’s economy has shown considerable resilience to the enormous shocks of the pandemic and we expect a further positive GDP (>5%) print in 2022 owing to broad based sector growth. External economic conditions pose a risk to our outlook; specifically the Russia-Ukraine war has dampened global trade and flow of resources, resulting in higher input and output costs. Locally, we expect the agriculture sector to be slightly affected negatively by uneven rainfall patterns.

Inflation
In Q1 '22
5
By Q4 '21
6

Inflation averaged 5.34% in Q1’22 compared to 6% in Q4’21. The conflict in eastern Europe has led to higher commodity prices which pose an upside risk. On the supply side, high prices of select imports e.g. steel and wheat, high energy and transport costs are slowing production. Meanwhile on the demand side, the rising com- modity prices has resulted to a slow-down in household demand. Moreover, the buffers and coping mechanisms of household, firms and the public finances have been deplet- ed. Given the weak fiscal position, any additional subsidies may be off the table for now. However, we believe that the central bank will deploy other measures to keep inflation expectations well anchored within their target range of 2.5% to 7.5%.

Outlook

Activity in the treasury bond market remains healthy, with rises in yields across all tenors. As the financial year comes to a close, borrowing pressure is expected to be low. However, foreign debt will become more expensive following the hikes in the Fed rate, and reliance on domestic borrowing will persist seeing yields remain healthy. We thus expected subdued fund performance owing to a rise in rates that will reduce valuations of already existing bonds; however we can participate in new issues to lock in higher rates thereby earning the fund higher coupons.

Exchange Rates
In Q1 '22 The Kes depreciated by


1


The Dollar closing at


114
to the $

The Kes has steadily depreciated by 1.24 % in Q1’22 with the dollar closing at 114.31. This is largely attributable to the rising costs of imports owing to global tensions and servicing of external debt obligations. Forex reserves resultantly declined quarter on quarter to USD 7.8Bn (equivalent to approx. 4.66 months of im- port cover). We expect the shilling to continue depreciating due to higher costs of imports and lower dollar inflows. The prolonged geopolitical tensions in Europe will lead to a further rise in costs of inputs and disrupt the ease of global trade pressuring the shilling further.

Interest Rates
The CBK maintained its benchmark rate at:

7
Interest rate

The CBK retained its benchmark rate at 7% in Q1’22. The stance was maintained despite rising inflation, with the authorities noting that it was still range bound and that it was necessary to continue providing an environment necessary to spur economic resilience. Short-term rates inched up in Q1 with the 91,182 and 364-day papers closing at 7.28%, 8.13 and 9.76% respectively. The yield curve steepened in Q1 with rates rising across all tenors. Having frontloaded much of the local borrowing in the first half of the fiscal year, we expect borrowing pressures in Q2 to be muted. Along with treasury’s impetus to lengthen the debt maturity profile, yields may not increasing significantly in the coming quarter. Inflationary pressures however poses a risk to our outlook of stabilizing yields.

Fund
Performance

Nairobi Security Exchange
yield curve: 31 DEC 2021

Statutory Disclaimer: The value of units may go down as well as up and past performance is not necessarily a guide to the future. There are no guarantee on the client’s capital as the performance of units in the fund is determined by change in the value of underlying investments hence value of your unit trust investment

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