East African stockmarkets have fallen by about 12 per cent in nine months as some investors sell shares in favour of high yielding bonds, while others choose to hold onto their cash in the wake of continuing instability in the economic environment characterised by rising interest rates and weakening currencies.

The rate of return on Kenya’s 91-day Treasury bill has jumped to a high of 21.35 per cent from an average of 8.58 per cent in January this year, as the government looks for funds to pay salaries and finance the operations of the national and county governments.

Investors who lend to the government for a period of six months will now get returns at the rate of 21.6 per cent compared with a return of 10.19 per cent in January this year.

The attractive returns on government securities have seen investors shift funds from the unstable stock market to the bond market, resulting in a decline in share prices.

“What we are seeing is just the impact of interest rates, which are still affecting the market in a big way especially the local investors, who are holding back as they take positions on the money market,” said Geoffrey Odundo, chief executive of the Nairobi Securities Exchange.

“People now prefer money markets compared with the equity market. However the shilling is strengthening and that is a good sign for the market. I’m not actually worried,” he added.

Robert Mathu, the executive director of the Capital Markets Authority of Rwanda, said investors are hesitant to put money in the equity market because of the risk factor.

“Markets, not just in East Africa but across the globe, have been affected by the events unfolding in the currency and commodities markets. The risk perception in these markets has made investors adopt a wait-and-see attitude,” said Mr Mathu.

According to Patrick Mususa, manager of projects and business development at the Dar es Salam Stock Exchange, the Tanzanian bourse has seen significant drops in cross-listed counters like Jubilee Holdings Ltd and Uchumi Supermarkets, rather than local counters, mainly due to exposure to currency fluctuations.

“Such changes in share prices tend to be amplified by parallel changes in the Kenya shilling rate. When it comes to prices of locally listed companies, they tend to be largely influenced by the behaviour of retail and institutional investors, which are often unrelated to the macroeconomic changes in the country,” said Mr Mususa.

The hardest hit are insurance and banking stocks, which have dropped by 40 per cent and by 15-30 per cent year-to-date respectively, according to analysts at Alpha Africa Asset Managers.

Lost value

Manufacturing companies such as British American Tobacco and East African Breweries Ltd lost 15.53 per cent and 16.88 per cent of their value respectively in the same period.

Other corporate giants whose values have shrunk in the market include Standard Chartered Bank, which lost 35 per cent of its shareholders’ wealth year-to-date. KCB has lost 24 per cent of its value, Co-operative Bank 14.5 per cent and Equity Bank 11 per cent.

In the insurance sector British American’s share price fell by 47.06 per cent; Pan African Insurance by 47.92 per cent and CIC Insurance by 29.17 per cent.

Market analysts expect the high interest rate regime, particularly in Kenya, to persist until the second quarter (March-June) of next year further suppressing demand for shares of listed companies.

“The bond market is giving us a return of 21 to 22 per cent and investors are going for that return compared with the equity market, which is highly uncertain. We see this trend being sustained as long as the rates remain high. The way things are going, we don’t expect to see interest rates going down until the end of the year,” said Francis Mwangi, head of research at Standard Investment Bank.

In Uganda the return on the 91-day Treasury bill is at 19.22 per cent while for a two-year Treasury bond is 20.31 per cent.

In Tanzania, the 91-day Treasury bill rate averages 8.95 per cent; the 182-day Treasury bill at 8.95 per cent and the 364-day Treasury bill at 14.99 per cent.
In Rwanda, the average return on Treasury bills is estimated at 4.05 per cent.

According to George Bodo, head of banking research at Ecobank Capital, short term rates are expected to stay elevated for the rest of the fourth quarter (October-December) implying that stock markets could remain volatile for the next couple of weeks.