By NJIRAINI MUCHIRA

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Securities across the East Africa region start another year with little cheer in terms of attracting new listings, increased participation from local retail investors and trading dominated  by a few large firms.

In a trend projected to continue in 2020, stockmarkets in Kenya, Tanzania, Uganda and Rwanda have become captive to foreign investors and government bonds while experiencing prolonged drought of attracting new corporate listings.

In Kenya, foreign investors account for about 70 per cent of trading with retail investors contributing a mere two per cent.

Worse, a handful of stocks of large companies dominate trading, a scenario that has been eroding the true market value of many small companies and discouraging many others from listings for fear of joining a long list of laggards.

In Kenya, Safaricom, Equity Bank, KCB, East Africa Breweries, BAT Kenya, Co-operative Bank and DTB Bank dominated trading last year, accounting for 89.5 per cent of turnover, according to data compiled by Standard Investment Bank (SIB).

For companies cross-listed, the pursuit of more liquidity and a greater ability to raise capital has proved elusive with stocks of many failing to generate interests from investors and trading below the issuance price.

This trend was at play when the Nairobi Securities Exchange (NSE) opened the first day of business last week on a subdued note, with foreign investors dominating trading, albeit as net sellers.

SIB data show market activity was subdued with a turnover of $800,000 with benchmark indicators posting mixed results.

The NSE 20-share index climbed 0.7 per cent to close the day at 2673.9 points, while the all share index retreated by 0.3 per cent. The NSE 25-share index closed the day unchanged at 4100.57, while market capitalization stood at $25 billion.

Jubilee Insurance was the surprise top mover, accounting for 29.3 per cent of total turnover followed by regional lenders Equity Bank and KCB that gained 1.4 per cent and 0.5 per cent respectively.

On the first day, foreign buys accounted for 41.7 per cent of market activities, with foreign sales accounting for 46.7 per cent.

“Foreign investors commenced the year as net sellers, recording paltry net outflows of $38,200,” said SIB’s Kenya Daily Report.

In Tanzania, Dar es Salaam Stock Exchange (DSE) recorded a total turnover of a paltry $8,394 from 25,857 shares traded in 23 deals with local investors being the sole participants in the market on the first day of trading.

According to analysts, the performance of regional stockmarkets this year will largely be impacted by the removal of interest rates capping in Kenya, economic performance across the EAC countries, weather patterns and the political environment, particularly in Tanzania.

“The outlook for Kenya is that we expect market activities to increase with more foreign investors flocking into the market after the removal of interest rates cap,” said Willis Nalwenge, research analyst at AIB Capital.

He added that rising political temperatures on the political front ignited by the Building Bridges Initiative report and whether Kenya should hold a referendum could reverberate to the markets.

In Tanzania, market performance is bound to take a beating because of elections with foreign investors, already rattled by President John Pombe Magufuli regime policies, staying away.

President Magufuli’s administration has instituted far-reaching reforms particularly on taxation, forcing some multinationals and private companies to scale down their operations or exit the country on the basis that they are punitive.

Barrick Gold was forced to pay $300 million to settle long-standing tax dispute and resume gold mining after acquiring the operations of Acacia Mining.

This could translate into subdued performance, considering that in the financial year ending June 2019, DSE total turnover stood at $58 million, a significant decline from $199.5 million in the previous year, according to Bank of Tanzania data.

On the upside, in 2020, investors will be in for a treat as Shanta Gold is on final steps to offload 49 per cent stake from its Singida Gold Mining project, expecting to raise $20 million.

Tigo Tanzania is also expected to go public. The firm submitted a proposal to float its shares locally after winning a legal ownership battle with Golden Globe International Services and Quality Group of Tanzania, which claimed to have acquired 34,479 shares in Tigo Tanzania’s holding company MIC Tanzania Ltd in 2014.

In Uganda, a drive by the government to get foreign companies particularly telecoms to list at the Uganda Securities Exchange will continue to receive subtle resistance due to lack of vibrancy and shallowness of the country’s bourse.

Already, Uganda Communications Commission has drafted new licensing rules that compel companies to list at least 20 per cent of shares on the USE. Listing on the USE was a key demand made during the public consultations for the renewal of, especially, MTN’s licence. The argument here is that the telcos make and repatriate much of its profit but the government wants some of that cash to stay in the country through a public listing

The decision by Uganda’s Capital Markets Authority to withdraw the licence of Altx East Africa Ltd, the country’s first automated stock brokerage firm, has exposed regulators in the region as being averse to innovations that can catapult market activities.

NSE has not attracted an initial public offering from a corporate entity in the past 10 years except the self-listing of the NSE in 2014 while USE has only brought on board Indian drugmaker Cipla Quality Chemical since 2012.

In Rwanda, the stockmarket is still in its nascent development stages with only two local companies listed — Bank of Kigali PLC and Bralirwa Ltd — and five Kenyan companies cross-listed, with hopes that the country’s largest cement-producing firm Cimerwa, could go public.

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DRY SPELL

East Africa’s stockmarkets are no longer favourites of investors seeking to raise capital for growth and expansion. Initial public offerings, which are usually associated with booming markets, have dried up and analysts say the unwillingness among new companies to offer shares to the public is a ticking time bomb heralding the eventual demise of the exchanges.

The latest developments casts doubt on the future of stockmarket listing in the region with some of the listed counters such as Kenya’s national carrier Kenya Airways considering a delisting option. It was understood that stringent market regulations, the high cost of listing, increased disclosure requirements, tough operating environments, falling corporate earnings and trading malpractices by dealers in Kenya have eroded investor confidence and kept potential issuers away.