Political risks, regulatory changes and macroeconomic environment instability stifled growth in East Africa’s stock exchanges in the six months to June 30, 2017, leading to a decline in the market value of shares held by investors.
Elections in Kenya and Rwanda, interest rate caps in Kenya, and the Tanzanian government’s enforcement of laws requiring telecommunications and mining firms to offload 25 per cent and 30 per cent of their shareholding, respectively, to locals, impacted the performance of the regional stock markets.
The Nairobi Securities Exchange saw a five per cent drop in profit while a number of stockbrokers and fund managers that have released their half-year interim results, such as Kingdom Securities, Dyer & Blair Investment Bank and Cannon Asset Managers, posted losses.
ICEA Lion Asset Managers posted a more than 50 per cent fall in net profit as brokerage commissions on trading activities plunged.
There was a rise in the cost of living during the period, reducing the purchasing power of households.
“The first half of the year was marked by significant inflationary pressures triggered by poor weather conditions,” Geoffrey Oundo, the NSE chief executive said.
The decline in the value of bank stocks on the NSE, which started after the enforcement of the interest rate caps on September 14, 2016, spilled over in the first quarter of 2017 as investors continued to evaluate the impact of interest rate caps on the lenders’ earnings.
However, the general performance of the equity market started recovering during the second quarter, due to the generous dividend payouts by most companies for the financial year 2016, pushing up the NSE All Share Index for the six months to June 30 by 22.74 per cent.
During the period, oil prices were supported by the decision taken by the Organisation of Petroleum Exporting countries on November 30 2016 to cut output by 1.2 million barrels per day as from January 2017.
The oil prices were also sustained by non-OPEC producers’ agreement on December 12, 2016, to slash output by 600,000 barrels per day.
In Tanzania the value of listed stocks and trading turnover declined during the first quarter of 2017 due to decreased activity by foreign investors and selling by local investors.
Experts argue that while the decision by Tanzania to compel telco’s and mining firms to relinquish part of their shareholding to the locals could boost activity on the Dar es Salaam Stock Exchange, the policy could also scare away foreign investors.
In June, over 90 per cent of Tanzanians sold off many of their shares, attributed to the appetite for the Vodacom Tanzania share IPO.
The country lifted a ban on foreigners participating in the telecoms industry IPO after a slow take-up of Vodacom Tanzania share sale launched in March. The IPO which was initially only open to local investors only was extended to allow foreigners to participate.
During the first half, the Rwanda Stock Exchange All Share Index and the Dar All Share Index fell by 2.29 per cent and 0.46 per cent respectively.
In Rwanda, the number of transactions on the RSE declined to 93, from 95.
In Uganda, the equity market performed relatively better, compared with its regional peers and analysts expect improved performance in the second half.
The number of shares traded on the Uganda Securities Exchange during the six months to June 30 increased to 37,833,446 from 9,601,589 while turnover increased to Ush12.8 billion ($3.5 million), from Ush2.29 billion ($629,608).