28 May 2018

East Africa: Attractive Prices Boost Activity On East Africa Stockmarkets

Renewed investor confidence in listed banks, telcos and manufacturing firms in East Africa helped spur activity on regional stockmarkets in the three-months period to March 31.

Analysts say that an improvement in the region's political and economic environment will further boost activity on the exchanges in the second quarter (April- June) by attracting foreign investors who are highly sensitive to political risks.

The Uganda Securities Exchange (USE) All Share Index for the three months to March 31 grew 40 per cent to 2,193.67, from 1,557.59 in the same period in 2017, while the Dar es Salaam Stock Exchange (DSE) All Share Index increased 13.2 per cent to 2,409.04, from 2,127.80 in the same period in 2017.

The Nairobi Securities Exchange (NSE) All Share Index surged 43.4 per cent to 191.23, from 133.34, while there was little activity on Rwanda Stock Exchange (RSE), with the index gaining a paltry 0.1 per cent with slight movements in equity trading.

Fewer than half of the eight listed firms on the Rwanda stockmarket posted movement in volumes as investors shifted funds away from the volatile stockmarket to government bonds.

The most active counters during the period included Bank of Kigali which has announced plans to cross-list on the NSE and I&M Bank (Rwanda).

SMEs

The RSE, where the government remains the mover of volumes through quarterly bond issuances, is banking on the Small and Medium Segment (SMEs) to infuse liquidity and activity.

SMEs will be allowed to sell shares to the public at no cost as the Rwandan government seeks to reduce the listing hurdles faced by small companies.

The RSE has partnered with the Rwanda Private Sector Federation to attract more small and medium enterprises to reinvigorate the exchange. Analysts say there is renewed investor confidence in some listed firms.

According to Cytonn Investments Ltd, investors are taking advantage of attractively priced counters in the respective markets.

Cytonn says that the Kenyan equity market is on an upward trend with heightened private equity transactions being witnessed in the financial services, hospitality, real estate and education sectors.

Among the key deals undertaken during the period were Centum's sale of its 25 per cent stake in regional micro-financier Platinum Credit, and the sale of its 73.4 per cent stake in asset manager GenAfrica to the US-based private equity fund Kuramo Capital.

"Given the improving operating environment after the elections, the expectation that long term investors will enter the Kenyan market seeking to take advantage of valuations that are still historically low, and expectations of a relatively stable shilling, we still expect investor sentiment to improve in 2018," said Cytonn.

Uncertainty in Tanzania

Stratlink, an Africa-focused financial advisory firm, said uncertainty in Tanzania's operating environment has led to the underperformance of the Acacia Mining stock on the DSE, with the bourse only benefiting from the rise in share prices of cross-listed stocks of Kenyan firms.

The DSE All Share Index closed the quarter in the green, gaining 2.1 per cent month-on-month and 6.9 per cent year-on-year to 2,414.7 points, boosted by gains in share prices of the cross-listed firms -- KCB, Nation Media Group, Kenya Airways, East African Breweries Ltd and Jubilee Holdings Ltd.

However, Acacia Mining saw its stock plunge 8.7 per cent during the period as the firm grappled with a ban on the exports of concentrates and ores for metals such as nickel and silver introduced by the Tanzanian government in March last year.

The ban affects foreign mining firms in Tanzania which are no longer allowed to process such mineral products abroad.

Activity on the DSE was also buoyed by manufacturing firms which pushed the Industrial and Allied Index up by 1.7 per cent to 5455.3 units while the Banking Index fell by 2.5 per cent to 2543.9 units.

The Commercial Services index remained unchanged at 2,463.9 units in the period under review.

Bullish NSE

In Kenya, activity on the NSE was bullish, helped by banking stocks that started rallying on the back of handsome dividend payouts by some listed commercial banks.

Between February 2 and March 27 this year, the Banking Stock Index appreciated by 14.3 per cent compared with 1.7 per cent for the NSE 20 Share Index.

The telecommunications, banking, energy and manufacturing sectors registered increased activity.

In the telecoms sector, Safaricom recorded an average turnover of Ksh5.84 billion ($58.4 million) while in the banking sector, investors kept a keen eye on the shares of Equity Bank, KCB, NIC, Diamond Trust Bank (DTB), Co-operative Bank and Barclays Bank, in the wake of its rebranding.

Kenol Kobil moved shares totalling Ksh3 billion ($30 million) while East African Breweries Ltd's shares worth Ksh 1.25 billion ($12.5 million) were traded. Bamburi Cement moved Ksh388 million ($3.88 million) worth of shares.

According to the Capital Markets Authority, activity on the NSE was buoyed by Kenyan investors, who controlled 78.87 per cent of the trading activities, followed by foreigners at 20.04 per cent while East African investors (Rwanda, Tanzania, Uganda, Burundi and South Sudan) contributed a paltry 1.09 per cent of the market.

Individual investors dominated the NSE at 45.83 per cent compared with corporates at 33.04 per cent.

The majority of shares -- 7.43 billion -- were held by male investors compared with female investors who owned 3.76 billion shares.

The average foreign investor participation as measured by equity turnover accounted for 50.98 per cent in the three months to March 31, compared with 64.75 per cent in the previous quarter (October-December 2017).

According to Stratlink, Tanzania is looking to introduce special tax incentives for investors wishing to set up new industries in the country after a report released by Venture Capital Association indicated that the country is still lagging behind its peers in attracting private equity deals.

The country attracted just about 17 per cent of the estimated $2.4 billion in venture capital coming into the region while accounting for just 10 per cent of the total deals.

In 2013, the Tanzanian government set itself the goal of reducing tax incentives offered to businesses to just about one per cent of the GDP, from about 4.3 per cent of GDP in 2012.

In 2015, Tanzania had to amend the Value Added Tax Act in an attempt to close corporate tax loopholes and plug widening fiscal deficits.

This resulted in a year-long $600 million tussle between government and Dangote Cement over investment incentives related to a new cement plant, after the company claimed the government was reneging on promises made by the previous administration to provide tax incentives for it to invest in Tanzania.

In Uganda, the Umeme counter led the market with 65.11 per cent of the total value traded, followed by Stanbic Bank Uganda (22.71 per cent), Development Finance Company of Uganda (8.79 per cent) while Bank of Baroda Uganda traded 2.89 per cent of total turnover.

The other counters traded a combined 0.50 per cent including cross-listed Centum Investments with 0.07 per cent and KCB with 0.02 per cent.

"Market activity on the Uganda Securities Exchange in the first quarter of 2018 was largely driven by investor optimism ahead of earnings releases at the end of the quarter.

"Investors appear to have anticipated a better than expected financial performance across all the listed financial institutions, these gained an average of 17.67 per cent on their prices," said Zacheus Mushaija, an analyst at Crested Capital Ltd.

"Market capitalisation on the USE also registered gains growing by 11.51 per cent in the three months. However, despite the gains registered on the USE, value traded on the bourse declined 11.23 per cent from the previous quarter."

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