10 June 2012

Uganda: Institutional Investors Blamed for Low Trade

Kampala, Uganda — Institutional investors who acquired shares from private investors are partly to blame for the low levels of trading at the Uganda Securities Exchange (USE).

Banks posted huge profits with Stanbic Bank, Uganda's banking bellwether, whose listing of shares on the Uganda Securities Exchange in 2007 revolutionalized the public's perception of stocks, made a record-breaking profit of Ush121b- crossing the Ush100b borderline for the first time. And with this has come the heightened demand for not only its shares but the shares of the other financial institutions listed on the bourse.

DFCU also posted a profit of Ush30.8b ($12m) in 2011 from Ush23.1b ($9m) the previous year while Bank of Baroda.

A bank is essentially meant to make money for its shareholders to earn dividends. They essentially lend, and with their floating interest rates criticized by customers as they kept rising, the banks turned this as an opportunity to make a killing. So putting aside the frustrations of high interest rates by customers, investors reaped big and they will probably look an even healthier 2012.

However, the shares are not readily available at the bourse and experts have attributed it to the institutional investors who have resorted to holding onto their shares.

A stock Broker who preferred anonymity at the USE told the East African Business Week that investors are holding on to their shares because they hope that the banks will perform even better this year.

"For Stanbic Bank it is understandable, the investors are holding onto their shares because they have already gotten their dividends and a bonus of 1 to 4 was passed on Monday. That is why there's high demand for its shares," he said, adding, "Even those who are willing to sell are demanding for high prices for their shares."

According to stock brokers, institutional investors have bought off most of the shares from the individuals who bought during the IPOs and are holding onto them.

"I think if the market is to bounce back there's need for a split of shares because the institutional investors don't sell. They are holding onto shares of companies like DFCU Bank because it is one counter that investors have a lot of confidence in," said one of the brokers.

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