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Understanding the Derivatives Market
Jul 7, 2019
The Nairobi derivatives market began trading on Thursday 4th July 2019, with the purchase of three single stock futures contracts. This follows the successful completion of a six-month Derivatives Exchange Pilot Test between July and December 2018. This venture will make the Nairobi Securities Exchange (NSE) the second exchange in Sub-Saharan Africa to introduce derivatives trading after the Johannesburg Stock Exchange (JSE) in South Africa. In this week’s note, we shall discuss financial derivatives, highlighting the following: Background of Financial Derivatives, Nairobi Securities Exchange Derivatives Market (NEXT), African Case Study: South Africa’s Derivatives Market, and, Our Views, Expectations, and Conclusion. Section I: Background of Financial Derivatives A derivative is a financial contract whose value is derived/re...Jun 30, 2019
During the first half of 2019, we tracked Kenya GDP growth projections for 2019 released by 16 organizations, that comprised of research houses, global agencies, and government organizations. The average GDP growth, including Cytonn’s 2019 growth estimate of 5.8%, came in at 5.8%, unchanged from average projections released in Q1’2019. The common view is that GDP growth will remain stable in 2019, from a growth of 6.3% in 2018, the fastest economic growth since the 8.4% recorded in 2010. Economic growth is expected to be driven by: Stable growth in the agriculture sector on the back of favorable weather conditions despite delayed onset of the long rains in most parts of the country, Implementation of the Big 4 Agenda projects by the Kenyan Government, and, Recovery in the business environment as evidenced by the Stanbic Bank Monthly Purchasing Manager’s Index (PMI), which rose to 51.3 i...Sub-Saharan Africa Regional Review
Jun 30, 2019
Regional Economic Growth In April, the World Bank Group released a report titled ‘An Analysis of Issues Shaping Africa’s Economic Future’, projecting Sub-Saharan Africa (SSA) GDP to grow by 2.9% and 3.3% in 2019 and 2020, respectively, from a growth of 2.5% in 2018. This upturn is to be supported by oil exporting countries, with the demand side being supported by exports and private consumption, and the supply side being supported by a rebound in agriculture, increase in mining production, and stable growth in the services sector in some countries. Overall growth is expected to be affected by the external environment as global growth continues to decelerate and global uncertainty abounds due to trade disputes between the United States and China, SSA’s major trading partners. Consequently, the outlook on commodity prices and the oil market is highly uncertain because of expected spill-over effects, especially towards commodity-driven e...Jun 30, 2019
Introduction According to the World Bank, the global economy experienced a slower growth, downgrading its 2019 economic growth forecast by 0.3% points to 2.6%, from the projected 2.9% as at January 2019. This is as a result of increased policy uncertainty, a recent re-escalation of trade tensions between major economies such as US and China, and increased geopolitical tensions, such as that between the US and Iran. This has led to reduced confidence, and consequently a deceleration in global investment. The International Monetary Fund (IMF) also downgraded its 2019 growth projections by 0.2% points to 3.3%, from the estimated 2019 growth of 3.5% as at January 2019, weighed down by the weakening financial market sentiments owing to (i) the current uncertainty on the direction of trade policy between the US and China, (ii) country-specific uncertainty such as Britain’s exit (“Brexit”) from the European Union, (iii) heightened geopolitical ten...Review of the Interest Rate Cap
Jun 23, 2019
This week, we revisit the interest rate cap topic following the proposal by the National Treasury Cabinet Secretary, Mr. Henry Rotich, in the Budget reading for 2019/20 fiscal year, to repeal Section 33B of the Banking Act, which capped interest chargeable on loans at 4.0% above the CBR rate. As highlighted in the Finance Bill 2019, the proposition to repeal the interest rate cap stems from the adverse effects the law has had on credit access, especially by the Micro, Small and Medium Enterprises (MSMEs), which consequently has detrimental effects on economic growth. In 2018, the Parliament rejected a similar repeal proposition made by the Cabinet in the Finance Bill 2018, electing to retain the lending rate cap ceiling but scrapping off the deposits rate floor, which was set at 70.0% of the Central Bank Rate. According to the Treasury, in order to spur business activity and improve access to credit to the private sector that is largely made of MSMEs, there is a need t...- Talk to us
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