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Executive Summary

Global Markets Review: Most global economies are expected to register improved economic growth in the third quarter of 2017, with China, the US and the Eurozone expected to grow at 6.5%, 2.3% and 1.3% annually, respectively. Monetary policy in the US and the EU remained stable with the US Fed maintaining the Federal Funds Rate at a bound of 1.00% - 1.25% in their September meeting, while the European Central Bank (ECB) maintained the base lending rate at 0.0%. Going forward, market consensus is for the US Fed to proceed towards normalization with a rate increase in December, and the ECB to proceed with monetary stimulus, which involves attempts such as lowering of interest rates in a bid to stimulate the economy by increasing money supply;

Sub-Saharan Africa and Regional Review: During Q3’2017, the International Monetary Fund (IMF) released the World Economic Outlook Update for July 2017, raising Sub-Saharan Africa’s growth expectation in 2017 to 2.7%, from 2.6% previously, primarily due to an upgrade on South Africa’s growth prospects, informed by an increase in mining output and improved rainfall in the country. According to estimates compiled by Focus Economics, Sub Saharan Africa GDP grew by 2.4% annually in Q2’2017, an acceleration from 2.0% growth recorded in Q1’2017. Regional currencies registered mixed performance in Q3’2017, with majority of the currencies gaining against the dollar. Yields on African Eurobonds have declined, shedding 1.2% points YTD on average in Q3’2017, highlighting improved investor sentiment owing to improving macro-economic conditions and a relatively stable political landscape;

Kenya Macro Economic Review: Kenya’s economy registered a growth of 5.0% in Q2’2017 as compared to 4.7% recorded in Q1’2017, and 6.3% in Q2’2016 mainly due to subdued growth in the agriculture sector at 1.4% from 5.5% recorded in Q2’2016, and a slowdown in the growth of the financial intermediation sector, which expanded by 4.3%, down from 7.5% recorded in Q2’2016;

Fixed Income: During the third quarter of 2017, T-bills auction recorded an undersubscription, with the subscription level coming in at 86.2% from 140.3% in the Q2’2017. Yields on T-bills remained relatively stable, closing the quarter at 8.1%, 10.3%, and 11.0%, from 8.3%, 10.3%, and 10.9% for the 91, 182, and 364-day papers, respectively, at the end of June 2017;

Equities: During the quarter, the Kenyan equities market was on an upward trend, with NASI, NSE 25 and NSE 20 gaining 6.1%, 4.9% and 4.0%, respectively, as a result of gains in large cap stocks. Top gainers for the quarter were DTB, Standard Chartered, Safaricom and KCB Group, which gained 15.6%, 11.1%, 8.8% and 8.6%, respectively. Since the peak in February 2015, NASI and NSE 20 are down 8.6% and 31.8%, respectively. During the quarter, listed banks and insurance companies released H1’2017 results, recording a decline in their core earnings per share;

Private Equity: Financial Services, Technology, Energy and FMCG sectors witnessed high levels of private equity activity during Q3’2017 as evidenced by increased deal activity by global investors including Abraaj Group, IFC, Fairfax Africa, and Actis, among others;

Real Estate: In Q3’2017, the real estate sector recorded a decline in performance, due to the wait and see approach adopted by risk averse investors during the electioneering period. The commercial office sector recording quarter on quarter declines of 1.9% points in occupancy rates, 0.1% points in rental yields, and 0.4% points in asking prices. The retail sector recorded 7.9% decline in average occupancy levels year to date, resulting in a decline in rental yields from 10.0% to 9.8%. The residential sector recorded a 3.2% year on year

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