Equity markets performance to dip for the remainder of this year

An investor at the Nairobi Securities Exchange August 1, 2014. Activity on the East African equity markets is expected to slow down for the remainder of 2014. PHOTO | SALATON NJAU 

By SCOLA KAMAU Special Correspondent

In Summary

• This is partly occasioned by capital outflows as the US Federal Reserve finally moves to end its debt recall.

Activity on the East African equity markets is expected to slow down for the remainder of the year.

This has been partly occasioned by capital outflows as the US Federal Reserve finally moves to end its debt recall.

 

Analysts said no major movement in market indices was anticipated at the Uganda, Rwanda, Nairobi and Dar es Salaam bourses in line with the tight liquidity in global markets likely from October, when the US closes the bond buyback programme.

“We anticipate a low to medium level of activity as a result of a decrease in money market yields and investors trying to take advantage of the awaited dividends,” PineBridge Investments senior investment manager Edward Gitahi said.

The bond buyback of up $35 billion per month currently was started in October last year in an effort to stimulate the economy by returning money to investors who had bought the treasuries. The programme depressed US interest rates, prompting investors to look elsewhere for higher returns.

However, other analysts said the end of the US debt recall could benefit the markets if investors moved money from emerging markets like Brazil, Russia, India, China and South Africa (Brics) to frontier markets like Kenya and Nigeria.

“The US investors may pull out their investments from emerging markets like Brics into the region, which is a frontier market,” said NIC senior research analyst Samuel Gichohi, adding that increased foreign investments would boost the equities market.

The NSE 20 Share Index has in the recent past been buoyed by counters such as Bamburi Cement, ScanGroup and Britam.

“Although companies are posting impressive results, the NSE 20 Share Index may remain flat, we are not seeing much appetite across counters. The 5,000 mark looks close but remains hard to achieve, at least not this year,” said Kamau Kuria, an analyst at Kestrel Capital. The NSE 20 Share Index has been flat in the year to date.

“Prices are being driven by company performance but there is high liquidity in the market with fewer products to purchase at the equities market. Getting more companies to list on the bourses has remained a challenge for governments,” said Stanbic Investment Bank research analyst Eric Musau.

He added that the profits reported by companies were not strong enough to boost appetite, adding that the flat performance could be lifted by rights issues.

Poor performance in the agriculture sector because of unfavourable weather and low global prices for tea and coffee is also likely to dampen enthusiasm for farm stocks.

Old Mutual Securities analysts said Uganda was already experiencing jitters ahead of the 2016 elections, which could deter credit expansion amid concerns over higher taxation. Uganda plans to finance 82 per cent of its budget from domestic revenues with the banking sector likely to be subjected to new taxes.

In Tanzania, foreign investor participation has reduced in the past two weeks. The Dar es Salaam Stock Exchange Index last week reached 2346.73, a 25.48 per cent increase year-to-date from 1870.18 points in January. It had reached a year high of 2379.86 points on July 17.

READ: Regional investors go slow on stocks as market indices hit new highs