East African security exchanges are facing an unpredictable political and economic environment that is likely to dampen stock prices in the second half of this year as foreign investors sell off shares while others postpone their investment plans.
This leaves shareholders of listed companies counting paper losses as the market value of shares declines.
Regional stock markets have been hit by an interplay between politics and macroeconomic factors such as rising inflation, high interest rates and weakening currencies.
The All Share Index of the Rwanda Stock Exchange and the Dar es Salaam Stock Exchange (DSE) fell by 2.29 per cent and 0.46 per cent respectively in the six months to June 30.
Share prices on the Nairobi Securities Exchange rebounded in the second quarter (April-June) due to the generous dividend payouts by most companies for the financial year 2016. This pushed up the NSE All Share Index for the six months to June 30 by 22.74 per cent.
The Uganda Securities Exchange floundered and analysts are optimistic of a rebound in the second half in the wake of a proposed rights issue by the Development Finance Company of Uganda, especially if Kenya’s election goes on smoothly.
“The market has been slightly depressed in the first half and we expect it to pick up in the second half, particularly if the proposed rights issue of a local bank comes through,” said Uganda’s Crested Capital Ltd chief executive Robert Baldwin.
“We are optimistic that investors will continue looking at East Africa particularly when elections in Kenya are conducted peacefully because the region gets attention once things are smooth in Kenya.”
According to analysts at AIB Capital Ltd, prices on the NSE and RSE will be subdued and only rebound if the August elections in Kenya and Rwanda are peaceful.
“A key risk to our expectation is political instability because in case the elections aren’t peaceful, they will dampen business activity further,” said AIB Capital through a market report for the second quarter of this year.
AIB Capital further said that the corporate earnings outlook for Kenyan companies is not rosy partly due to a slowdown in business activities in the country.
Listed companies in the energy, banking and agriculture sectors are expected to post negative to low digit numbers this year.
“Business and economic activity are however expected to rebound as the effects of drought subside and as we conclude the election cycle,” according to AIB Capital.
Eva Murigu, an Africa strategist at Standard Chartered Global Research, said Kenya’s stockmarket will face declining demand, since most investors would hold back on their investment plans due to the forthcoming elections and global uncertainties related to changes in the US interest rate and the effect of Brexit on the country’s key export markets.
Banking stocks on the NSE were hit in the first quarter (January-March) as investors assesed the effects of interest rate capping on the lenders’ earnings.
In the second quarter (April-June) the NSE 20-Share Index rose 16 per cent to 3,607, from 3,113 in the first quarter (January-March). Among the top gaining stocks were Crown Paints (65 per cent), Diamond Trust Bank (38 per cent), National Bank (38 per cent) and Safaricom 27 per cent.
Top losers were Nairobi Business Ventures, Umeme Ltd, Sameer Africa and Kenya Airways, whose share prices declined by 23 per cent, 22 per cent, 18 per cent and 16 per cent respectively.
In Tanzania, the value of listed stocks and trading turnover dropped in the first quarter of this year due to decreased activity by foreign investors and increased selling by local investors to finance their daily social and economic needs.
While efforts by the Tanzanian administration to compel telecommunications and mining companies to sell part of their shareholding to the public could spur activity on the DSE, they could also drive away foreign direct investment.
The Tanzania’s All Share Index dropped from 3,677.82 points as at the end of December 2016 to 3,572.68 points as at the end of March 2017.
The decrease was attributed to the decline in prices on the CRDB Bank, Tanzania Portland Cement Company and Mwalimu Commercial Bank counters which dropped by 26 per cent, 13 per cent and four per cent respectively.
Tanzania Breweries Ltd, Tanzania Portland Cement Company and Swissport Tanzania plc were the top three most traded counters in the quarter.