Martin Owiny
2 November 2008
opinion
The global financial crisis definitely has the world talking with a number of people looking on in shocked disbelief as stock markets around the world, including Uganda's are subjected to extreme volatility with share prices moving up and down.
Alan Greenspan, former chairman of the American Federal Reserve, who is considered "the oracle" of the US economy, also expressed shocked disbelief in his testimony to the US Congress on October 23. According to Greenspan, this "once-in-a-century tsunami....has turned out to be much broader than anything I could have imagined.
It has morphed from one gripped by liquidity restraints to one in which fears of insolvency (bankruptcy) are now paramount....Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity are in a state of shocked disbelief".
Unfortunately, a "necessary condition for this crisis to end is a stabilisation of home prices in the US. At a minimum, stabilisation of home prices is still many months in the future". He went on to say "Given the financial damage to-date, I cannot see how we can avoid a significant rise in layoffs and unemployment".
A number of financial experts across the globe have also looked on in shocked disbelief, which has transitioned into panic with massive offloading of shares across the globe's financial markets. This offloading of shares has resulted in massive price declines in the various stock markets across the globe because the high supply of stock coming from investors who are desperate to sale.
This offloading of stock by international players has affected African stock markets with countries such as South Africa, Egypt and Kenya taking the brun.
This week more than ever before a number of stocks on the Uganda Securities Exchange also experienced a decline in price as investors mainly from Kenya began taking profit on shares that they hold such as Uganda Clays and Bank of Baroda, resulting in substantial price declines as the market experienced excessive supply of shares.
The reality with price declines however is that prices can only decline so far. At a certain point sellers will stop selling because the price being offered is no longer worthwhile for one to obtain value for the share/stock being held. The prospective seller therefore prefers to continue holding their stock/share for the long term. At this point the same stock that saw prices tumble suddenly begins to look attractive.
At this point the prudent buyer takes a careful look at the fundamentals driving the company that has seen a substantial price decline. Should they find that the company is fundamentally strong offering good growth for the future in spite of market factors such as competition, such a buyer will begin to pick up shares/stock from the company that has seen a price decline, because its price is simply "good".
They do this because they know it is only a matter of time before market confidence is restored and other buyers begin to realise that the value of the stock is actually "good" and that they should have it in their possession based on its future value. Once other buyers come to this realisation the price of the same stock/share begins moving upwards as a result of the improved demand.
A number of analysts have taken a look at shares/stocks both in Uganda and on the African continent and come to the conclusion that the companies where these shares/stocks are held are fundamentally strong and unlike their counterparts in offshore markets these companies have not over-borrowed and neither have they invested in complex financial products like their foreign counterparts have done.
This is a hard sale to foreign investors who are experiencing substantial volatility in their localities because as far as they are concerned they would rather take profit in jurisdictions which are only beginning to experience volatility and thereafter revert to the "safety" of environments that they understand better such as their own localities.
This global financial crisis therefore seems to pointing investors towards their own localities, whether these investors are in Africa, the US, Europe or Asia, they all seem to be comfortable charting waters in environments where they have better understanding and are therefore withdrawing interests from localities that are foreign to them.
The question for us as Ugandans is will we also rise to the occasion and express similar confidence in the stock market we understand best - the Uganda Securities Exchange? Here it would be in order to visit the philosophy of one of the US's financial millionaire Warren Buffet. His philosophy is to buy when everybody else is selling off because that is where the real opportunity to make good money lies, because you'll buy cheap and sale expensive when everybody else is beginning to buy. However, one would need to have patience as a virtue because markets may not turn around overnight.
Mr Owiny is general manager of Stanbic Investments, East Africa
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