NAIROBI (HAN) November 17.2016. Public Diplomacy & Regional Security News. By KABONA ESIARA. East African markets are expected to close the year stable, buoyed by strong regional growth combined with recovering global commodity prices.
But a raft of reforms and interventions to create momentum in the capital markets, whose liquidity has come under pressure, are needed to address the capital needs of businesses, experts say.
The interventions coupled with a projected GDP growth of 4.5 per cent, according to analysts, should raise appetites for big ticket investors who had fled the region’s bearish equity markets.
“Investor education and awareness creation, introduction of market segments that are friendly to the listing of small and medium enterprises (SMEs), reforms to make regulatory frameworks able to encourage more listings and review of market fees are needed,” said senior researcher at the Kenya Capital Markets Authority Justus N Agoti.
Data from the CMA shows that the Uganda Securities Exchange, the Dar es Salaam Stock Exchange and Nairobi Securities Exchange all share indexes closed the third quarter of this year in the negatives compared with the same period last year.
Investors and deal markers watch indexes before making investment decisions in stocks.
In the third quarter, the USE All Share Index dropped -14.79 per cent to 1,454.42, from 1,706.81 in the same period last year.
Salma Nakiboneka, head of research and fixed income at Crested Capital, a Kampala-based financial services firm, attributes the dip in the index to the perceived political risk around the general election in February, which saw investors hold back long term investments and opt for low-risk, high-paying short-term government debt.
The $7 billion Ugandan capital market is expected to remain resilient, with fluctuations largely being determined by the performance of listed companies.
The DSE index dropped marginally by 0.19 per cent to 2,477.24, from 2,481.99, while the NSE All Share Index dipped by 2.70 per cent from 140.6.
This drop on the DSE is expected to be shortlived as the markets rally in response to strong economic growth in Tanzania, projected at above 7 per cent in the fourth quarter, analysts say.
“The Tanzania capital markets are expected to largely follow a similar trajectory and have been registering an average market value of above $9.5 billion in recent months,” said Mr Agoti.
Rwanda Stock Exchange stock prices have continued falling, partly due to the strengthening of the dollar and effects of the depressed export markets.
“When the dollar appreciates of course you have more currency risk perceptions meaning international investors look more and more at short term instruments not long term ones,” said RSE chief executive, Celestin Rwabulumba.
The International Monetary Fund projects that Rwanda’s economy will grow at 6 per cent, driven by the services sector. The capital markets’ value has been averaging $4 billion.
In the case of Kenya, Mr Agoti said the country’s economy experienced a better growth environment in Q2/2016, expanding by 6.2 per cent year-on-year, compared with 5.9 per cent during the same quarter in 2015. Despite extended periods of dry weather in parts of the country, Kenya is expected to largely remain on a growth trajectory. Market capitalisation has been averaging $20 billion.
“Overall, in November and December, we do not see a significant departure in the performance of the regional capital markets from the average performances and valuations,” he said.