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Macro Thoughts

Home Thoughts

I heard Big Ben for 5 whole Years wen I was at School.

Of course, the first engagement between China and Kenya, occurred in
the c15th, when the Chinese Admiral Zheng He [a Muslim and a Eunuch]
visited the Swahili coast. Naturally, the Chinese have been keen on
ventilating the story of Zheng He's c15th visit because it is a Soft
Power Gift Horse. You will recall the discovery of Chinese DNA on Pate
Island and the story is that the DNA belonged to Chinese Ming sailors
who were shipwrecked and then married the local women.

 🐘 Soaking that glorious light 🐘 @The_Mentalyst

Defense Secretary Jim Mattis warned it would be “game on” for war if
North Korea fired missiles that hit the U.S. or its territories,
including the Pacific island of Guam.

“It could escalate into war very quickly -- yes, that’s called war,”
Mattis told reporters Monday at the Pentagon. “If they shoot at the
United States, I’m assuming they hit the United States -- if they do
that, then it’s ‘game on’.” Asked if he considers Guam part of the
U.S., he said, “Yeah, it sure is.”

Kim discussed plans for Guam with his commanding officers during an
inspection of military forces on Monday, the state-run Korean Central
News Agency reported. The North Korean leader said he will watch the
U.S.’s conduct "a little more" and praised his strategic force for
drawing up "a close and careful plan,” KCNA said.

With military commanders waiting for orders from the Workers’ Party
Central Committee, Kim added he would “watch a little more the foolish
and stupid conduct of the Yankees spending a hard time of every minute
of their miserable lot,” KCNA reported.

Mattis, who also sought last week to emphasize diplomatic efforts,
said Monday that he wasn’t trying to reignite tensions.

“It’s not that I’m over here -- Dr. Strangelove,” he said, but “you
don’t shoot at people in this world unless you want to bear the
consequences.”

Conclusions

Both seem to be looking for a Ladder wit which to back down, now.

India can defend itself from anyone who seeks "to act against our
country", Prime Minister Narendra Modi said in an Independence Day
speech Tuesday amid a tense standoff with Beijing over a Himalayan
plateau.

"Security is our top priority," Modi said in a speech before thousands
at the landmark Red Fort in New Delhi as the country marked the 70th
anniversary of the end of British colonial rule.

"Be it the sea or the borders, cyber or space -- in all spheres, India
is capable and we are strong enough to overcome those who try to act
against our country," the Hindu nationalist leader declared.

His remarks came as New Delhi's dispute with Beijing over a
strategically key Himalayan plateau enters its second month on
Wednesday, with hundreds of soldiers reported to be facing off against
each other.

Conclusions

Xi Jinping has Narendra Modi where he wants him, on the back foot.

The denouement of the dangerous India-China military standoff in
Doklam near the Sikkim border is hard to predict. But on the
diplomatic and geopolitical plane, one definite outcome of the
standoff is going to be that the South Asian and Indian Ocean region
will witness big-power rivalry in a way that eluded it even in the
high noon of the Cold War era.

Arguably, such a shift could have been expected ever since India began
wading into the South China Sea disputes with gusto over the past few
years. The Doklam standoff has become a defining moment. An editorial
in the Global Times newspaper on Friday gave notice that since India
had been harming China’s interests, Beijing was now left with no
option but to retaliate. The editorial blasted India’s neighborhood
policies in South Asia:

In strategic terms, China seems to think that South Asia’s Gulliver
can be tied down by the region’s Lilliputians. The old hackneyed
thesis of the “string of pearls” seems to be coming true.

Conclusions

Euro 1.1729
Dollar Index 93.76
Japan Yen 110.44
Swiss Franc 0.9740
Pound 1.2957
Aussie 0.7831
India Rupee 64.055
South Korea Won 1135.46
Brazil Real 3.1882
Egypt Pound 17.7177
South Africa Rand 13.3334

U.S. crude #oil futures settle at $47.59/bbl. ⬇$1.23. -2.52%.
@Lee_Saks 47.62 Last [Expecting that crack lower now]

Emerging Markets

Frontier Markets

"He is not back yet from hospital in Johannesburg," Mugabe said during
his speech at the national Heroes Acre. He did not give details.

Mnangagwa and Pelekezela Mphoko are Mugabe's vice presidents in the
ruling party and government but the former is seen as the likely
successor following elevation to the post in 2014.

S&P says angola downgraded to 'B-' on rising debt service costs, weak
economic prospects; outlook stable

S&P, on Angola, says banking sector is weak; some important state
banks are undergoing restructuring processes, posing contingent risks
to government

Amid the ongoing analysis of the relative power of the different
personalities in the ANC, one of the big questions is whether those
ANC MPs who voted to remove President Jacob Zuma last week will be
disciplined. If they are, that will show that Zuma and his supporters
still have much political power. If they are not, it will demonstrate
that people can disobey Zuma and get away with it, which could inspire
others to follow suit. Zuma has now said that those who disobeyed the
party whip should be disciplined. But he may find it much harder to
follow through in action.

Over the weekend, President Jacob Zuma went to his normal place, the
place where he seems to have spent much of the year. You already know
which province, don’t you? And while in his stronghold he said that he
will go to an officials’ meeting and “express my dissatisfaction about
the conduct of some members and why”. According to The Times, he also
read out a part of the ANC’s constitution that prohibits members from
working with “counter-revolutionary forces” and then said, “If you
commit any of these acts, it means the ANC has to take you to the
disciplinary committee, because it means you have broken the law.” We
all know that former Tourism Minister, Derek Hanekom, is one of the
people who had indicated they would vote against the ANC’s whip.
Hanekom, of course, is the former tourism minister. He is also chair
of the ANC’s disciplinary committee. To which Zuma pointedly remarked:
“However, what is more shocking is that the chair of the very same
committee also voted with the opposition.”

55,465.65 +310.52 +0.56%

Dollar versus Rand 6 Month Chart INO 13.3334 [Time to Buy the ZAR?]
http://quotes.ino.com/charting/index.html?s=FOREX_USDZAR&v=d6&t=c&a=50&w=1

Nigeria All Share Bloomberg +41.21% 2017
http://www.bloomberg.com/quote/NGSEINDX:IND

Ghana’s central bank approved a deal that will see Ghana Commercial
Bank Ltd. take over the deposits and selected assets of UT Bank Ltd.
and Capital Bank Ltd. after the two lenders failed to meet capital
requirements.

PricewaterhouseCoopers LLP will sell the rest of the assets to settle
liabilities, Raymond Amanfu, head of banking supervision at Bank of
Ghana, said by phone on Monday. UT Bank and Capital Bank’s licenses
were revoked “due to severe impairment of their capital,” the central
bank said in an emailed statement.

“Their continuous operations would’ve jeopardized not only their
depositors’ funds, but also pose a threat to the financial system,”
Bank of Ghana Governor Ernest Addison told reporters Monday in the
capital, Accra.

Kenya’s national elections last Tuesday were closely watched around
the world, less for the results than for the threat of violence that
has marred past elections. Barack Obama, whose father was a Kenyan,
had been among those urging the country’s leaders to “reject violence
and incitement.”

That has not happened. Raila Odinga, a perennial loser, began crying
foul long before the election commission declared that President Uhuru
Kenyatta was re-elected with 54 percent of the vote to Mr. Odinga’s
45. Mr. Odinga’s unsubstantiated claims have already touched off
rioting in parts of the country, and the violence could spread.

The presidency was one of 1,880 positions Kenya’s 19 million voters
were to fill. It was the most closely and nervously monitored race
because of the violence following past presidential elections, notably
in 2007, when more than 1,300 people died and hundreds of thousands
were displaced.

Since then the Kenyan government has made admirable changes to the
Constitution, devolving considerable powers to 47 newly created
counties so that the presidential race would not be a winner-take-all
affair. But ethnic identity still plays a major role in Kenyan
politics, with all but one president since independence, including
Jomo Kenyatta, the first president and father of the current one,
coming from the Kikuyu tribe, the country’s largest.

Both President Kenyatta and Mr. Odinga, a Luo, come from families and
networks that have dominated Kenyan politics since independence, and
both represent coalitions of ethnic groups. Mr. Odinga has once again
fanned the embers of ethnic strife.

That is disgraceful and unnecessary. International monitors from the
African Union, the United States and Europe said they witnessed no
foul play; former United States Secretary of State John Kerry,
co-leader of the Carter Center’s mission of election observers,
praised Kenya’s election commission for its transparency and
diligence. All observers have urged Mr. Odinga and other losing
candidates to refer any allegations of fraud to the commission and the
courts.

Mr. Odinga’s specific claim is that Mr. Kenyatta’s Jubilee party
hacked into the election commission’s computers to manipulate results,
using the identity of Christopher Chege Musando, the commission
communications manager who was murdered a few days before the voting.
His death remains unsolved. The commission said that there was an
attempt to hack the computers but that it failed.

All that can and should be checked. But in the meantime it is
imperative that Mr. Odinga strongly urge his followers to remain calm.
At 72, he might mull the idea that a display of respect for the new
Constitution would be a far better legacy than another bloody spasm of
violence.

“I don’t expect Raila Odinga to concede,” said Ndung’u Wainaina,
executive director of the International Center for Policy and Conflict
in Nairobi. “With the court constituted in the way it is, he doesn’t
expect any justice. He is going for massive mobilization of his
supporters. We are likely headed for a protracted political action.

The financial markets have shrugged off the possibility of protracted
political turmoil, with the FTSE NSE Kenya 25 Index of stocks gaining
for a fifth day on Monday. Kenya’s dollar debt returned 1.3 percent
last week, more than any of the other 84 countries in Bloomberg’s main
index for emerging-market Eurobonds.

As the dust settles, it is crystal clear that President Kenyatta
pulled off a serious political victory. The President's team out
thought, out spent and out manoeuvred the Opposition at practically
every turn. Mr. Musyoka's intemperate remarks that Central Province
should lie low like an envelope just twenty four hours before the vote
surely dialled up the vote in Jubilee strongholds. Mr. Odinga's call
for rent controls put every Owner on notice and I think that too was
an ill-advised call and underestimated the ''ownership'' Economy.
There are many Kenyans today who after years of graft own a piece of
the economy and they surely got nervous. It is time now for the
Opposition to skip a generation and this is said with humility. It is
also time for the Opposition to appreciate [once the trauma of losing
subsides] that there are two audiences. The first audience is its own
supporters, the second is everyone else. If You are going to argue the
case that a cyber crime was committed then for goodness sake find
someone who can make that argument credibly.

In fact, the Election had the potential to produce quite a bifurcated
economic outcome. Kenya stands in the Van-Guard of Free market
economics in Africa, it has taken more than 50 years to establish our
credentials in that regard. An Odinga Administration would have taken
a leftist tilt and the markets naturally were more aligned with
President Kenyatta and hence the very positive market reaction; The
Stock Market gained around 5% last week and Kenya's Eurobonds had
their best week in 2017. We need to build on that positive momentum to
crowd local and International investors into Kenya. What we have
learnt is that 5%-6% GDP growth [whilst better than most of Africa]
after being diluted by population expansion is not effecting
meaningful trickle-down. It was this fact [re-characterised as a
refrain ''You cannot eat GDP''] which the Opposition failed to
leverage, to their own chagrin. Therefore, we have to find a GDP
Off-Ramp, one where the Economy speeds up to 8% and more. Kenya has to
dash for growth, thats a sine qua non for the next 5 years.

President Kenyatta has to be Saint George in his second administration
and slay the corruption Dragon. I recall a period in 2002, when
Citizens performed citizens arrests of Policemen [for asking for
bribes] and marched them to the Police Station. It was a remarkable
moment and shows that it is possible to do something. A big Effort on
this front would release at least a $1b and more per annum and juice
the GDP move towards 8%. The President needs to consider how to
recapture that cathartic moment that we witnessed in 2002.

Infrastructure Spending like the Railway were absolutely necessary. If
we are serious about entrenching our Pivot/Transit State status [i.e
the Route to the Sea and the global markets for a number of adjacent
states] then we absolutely needed to make these big-ticket investments
in the Railways, the Roads, the Ports. Already President Magafuli has
proven a fierce competitor and his recent Oil Pipeline win shows that.
So these investments were necessary. Many commentators in my opinion
have underestimated the positive economic spill-over effects that will
arise from these investments. Today, Companies can tap into cheap
Power [Geothermal is one example], they can situate themselves close
to the Railways, they can export goods via the Railway to the sea and
to a 3b People market on our doorstep in the Indian Ocean Economy let
alone the Globe. We have a vast reservoir of good human capital that
is hard-working and these all are the magic ingredients for creating a
''Mekong Delta'' Economy  that becomes an accelerant.

Debt is an issue. Its blinking amber. We can argue that at a ratio of
around 53% Debt-to-GDP we are comfortably within 60% [which was the
Maastricht criteria for the European Project, for example] but we have
now run out of headroom. We will need to eat more delicately at the
Debt Table. We will have to sequence our Big Dreams. We cannot do
everything at once. How we manage our debt will be important in the
2nd term. We need to aggressively interrogate ROI [Return on
Investment] so that we push those projects that have a higher and
quicker ROI profile. Tactically speaking, there is an opportunity to
unload more Eurobonds in the short term but over the medium term, we
need to now sequence better and bite off only what we can comfortably
service.

We need to now also call a stop to the endless Bail-Out ''Ground Hog''
day rigmarole. Kenya Airways was a ''National interest'' issue. If we
want to be a Gate-way to Africa and a hub, we absolutely needed a
national airline. There was no choice around the Kenya Airways rescue.
However, we know need to establish where that National Interest red
line lies and companies that fall on the wrong side of that line, must
be left to fail. This Government Put-Option has to end. One of the
most progressive elements of our economic Policy over the last 15
years was the privatisation Policy which saw its culmination in the
sale of Safaricom shares for 5 shillings way back in 2006. We need to
re-gnite that Program. Its a Silver Bullet. It gets GOK out of
business, it gives citizens a stake and those who have a stake tend
not burn things down. The secret of such a program is not to ''milk
the cow'' but to ensure that Citizens are sold shares at prices that
give them a profit. Optimal pricing keeps the Pipe flowing. There is a
Tsunami of cash to be tapped internationally and domestically but
never ever leave Citizens nursing losses.

Our Economy is not a mono-line economy. It is multi-faceted. It has
multi-dimensional promise from the ubiquity of Mobile Money to the
promise of the entrepreneurial spirit in every citizens DNA. I was
transfixed by the long Queues of Kenyans waiting patiently to cast
their votes and then I noticed a Fellow who had set up his own Coffee
Stand and I thought thats my Kenya. If opportunity comes knocking,
Kenyans seize it, we just need to ensure it comes knocking.

Finally, I liked the tone of President Kenyatta's acceptance speech.
You are indeed the President of 43m Kenyans. The President needs to
include everybody. Kisumu, for example, is about to receive a huge
investment from EABL. There are plenty more investments that we can
make or help others make. Its a Carpe Diem moment.

Over to you President Kenyatta.

“There is no smoking gun and hence the positive reaction. President
Kenyatta and Kenya’s free market credentials are burnished by what was
a very well-conducted election and I expect a serious upwards rerating
at the stock exchange. The shilling will remain robust.”

Nairobi All Share Bloomberg +26.60% 2017 [27 month Highs]
http://www.BLOOMBERG.COM/quote/NSEASI:IND

168.81 +3.81 +2.31%

The NSE-20 index has risen nearly 7 percent since the election last
Tuesday. Kenyatta was declared winner by a clear margin on Friday but
his main challenger, Raila Odinga, has not yet conceded.

"The markets were concerned around a leftist 'Magufuli'-like tilt
which would have eroded Kenya's hard won free market credentials. So
part of this rally is a relief rally," he told Reuters, referring to
President John Magufuli of neighbouring Tanzania.

Kenyan shares had slightly lagged this year's gains in other African
bourses like Nigeria as investors waited to see how the election would
go, market participants said.

"This means there is a tonne of liquidity that is set to enter the
market and underpin valuations," Satchu said.

Par Value:                  2/-
Closing Price:           11.55
Total Shares Issued:          5431536000.00
Market Capitalization:        62,734,240,800
EPS:             1.36
PE:                 8.493

Barclays 1 2017 Earnings versus H1 2016
H1 Kenya Government securities 52.649364b vs. 47.225521b +11.485%
H1 Loans and advances to customers (net) 163.782554b vs. 153.304212b +6.835%
H1 Total assets 268.186848b vs. 256.142225b +4.702%
H1 Customers’ deposits 188.652234b vs. 182.875680b +3.159%
H1 Total shareholders’ funds 40.786729b vs. 39.103237b +4.305%
H1 Net interest income 10.544100b vs. 11.097121b -4.983%
H1 Total non-interest income 4.394476b vs. 5.137897b -14.469%
H1 Total operating income 14.938576b vs. 16.235018b -7.985%
H1 Loan loss provision [1.353470b] vs. [2.009443b] -32.645%
H1 Staff costs [5.123834b] vs. [4.875849b] +5.086%
H1 Total operating expenses [9.786409b] vs. [10.411894b] -6.007%
H1 Profit before tax and exceptional items 5.152167b vs. 5.823124b -11.522%
H1 Profit after tax and exceptional items 3.542638b vs. 4.086689b -13.313%
EPS 0.65 vs. 0.75 -13.333%
Dividend per share 0.20 vs. 0.20 –
Total NPL and Advances 8.765817b vs. 6.553440b +33.759%
Net NPL and Advances 2.919576b vs. 1.746398b +67.177%
Liquidity Ratio 36.1% vs. 36.6% -0.500%

Conclusions

In the context of the new Rate Cap Landscape these are actually better
tan satisfactory results.

Par Value:                  0.05/-
Closing Price:           25.00
Total Shares Issued:          40065428000.00
Market Capitalization:        1,001,635,700,000
EPS:             1.21
PE:                 20.661

4,076.94 +99.96 +2.51%

Every Listed Share can be interrogated here
https://rich.co.ke/rcdata/nsestocks.php

"The markets were concerned around a leftist 'Magufuli'-like tilt
which would have eroded Kenya's hard won free market credentials. So
part of this rally is a relief rally," I  told Reuters
Kenya's Eurobonds outperformed all emerging-market peers last week.
The Shilling is gently gliding higher and was last at 103.72 versus The Dollar.
The Nairobi All Share which had rallied +6.28% since 7th August
closing [The Post Election Pop] eased 0.10 points to close at 168.71.
The all Share is +26.52% in 2017 and at 27 month highs.
The Nairobi NSE20 rallied +0.909% to close at 4114.01 a Fresh 22 month
High. The NSE20 [The Post Election Pop] +7.75% since 7th August
closing and is +29.12% in 2017.
Equity Turnover of 842m continues to verify the bull move higher.

Safaricom eased -1.00% off a record closing high to close at 24.75 and
traded 11.607m shares. Any retracement is corrective ahead of a Run-Up
to 28.00.

Kenya Airways popped over 5.00 and +2.02% higher to close at 5.05 and
was 5.20 +5.05% at the closing bell. Kenya Airways traded a big chunk
of shares 2.609m to be exact.

Bank stocks have been on a tear this year. Some of that Bull Move is
predicated on a reversal of the Rate Cap.

Barclays Kenya reported H1 2017 Earnings this morning where H1 Loans
and advances to customers (net) grew +6.835% to clock 163.782554b,
Holdings of GOK Government Bonds accelerated +11.485% to register
52.649b, H1 Profit before Tax clocked a -11.522% decline to 5.152b, H1
Earnings per share was 65cents versus 75cents last time and the
Interim Dividend was eld at 20cents a share.  In the context of the
new Rate Cap Landscape these are actually better than satisfactory
results. Barclays firmed +0.43% to close at a Fresh 2017 high of
11.60. Barclays Bank is +38.46% on a Total Return Basis in 2017.
Equity Bank firmed +0.56% to close at a Fresh 2017 High of 44.25 and
traded 3.830m shares. Equity is +54.166% on a Total Return Basis in
2017.
COOP Bank rallied +3.24% to close at 17.50 and traded 1.1m shares.
Housing Finance popped +8.916% higher to close at 13.20 and traded
477,000 shares.

CIC Insurance surged +9.02% to close at a 2017 high of 6.65. CIC
Insurance is now +75% in 2017.

KenGen eased -1.515% off a 2017 high to close at 9.75 and remains
+68.1% in 2017.

Mumias Sugar rallied +4.166% to close at 1.25 and had 10 Buyers for
every Seller.