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| Stockbrokers on the trading floor of the Nairobi Securities Exchange. |
“There is a lot of capital flight because of the events happening both globally and internally. As a result, we have seen stockmarket prices come down,” said Eric Munywoki, a research analyst at Old Mutual Securities Ltd, adding, “African exchanges have been on the losing end since January.”
Globally, the US dollar has become increasingly attractive as the world’s largest economy shows signs of sustained recovery compared with Asia, the Eurozone and emerging markets.
READ: Shilling fall sees dollar investors lose at regional equity markets
“Last week, we saw a lot more volumes from local investors but very little from foreign investors,” said Patrick Mususa, manager-in-charge of projects & business development at the Dar es Salaam Stock Exchange.
“The Exchange has indeed felt the effects of the currency shift. However, foreign investors are not exiting the market. Rather they have taken a wait-and-see position by holding onto their stocks,” he said.
Tanzania has injected $800 million into the economy in a bid to ease pressure on the shilling with the funding coming from the Rand Merchant Bank in South Africa and the China Development Bank Corporation.
During the second quarter (April-June) of this year, activity at the DSE was affected by the depreciation of the shilling, impacting negatively on investors’ returns in dollar terms.
As a result, foreign investor activity reduced from 91 per cent in the previous quarter (January-March) to 86 per cent on the buy-side and from 77 per cent to 41 per cent on the sell-side.
According to DSE’s quarterly market report, valuations on the exchange have decreased slightly.
“Today, our market valuations on price/earnings ratio-basis are slightly cheaper,” said Moremi Marwa, chief executive of DSE.
Activity on the Nairobi Securities Exchange has been lukewarm, with the Kenya shilling falling to as low as Ksh102 against the US dollar, prompting the Central Bank to summon a second emergency monetary policy meeting in less than a month.
Data from the NSE showed that during the week ended July 10, the bourse recorded a decline across the equities and bonds segments.
Equity turnover fell 46.24 per cent to Ksh6.35 billion ($61.25 million) from Ksh11.81 billion ($113.92 million) on account of the fall in share prices.
Shareholder wealth, which is measured by market capitalisation, declined to Ksh38.78 billion ($374.07 million) during the week.
Bonds turnover fell by 32.11 per cent to Ksh2.44 billion ($23.53 million) from Ksh3.59 billion ($34.62 million).
“We are seeing a lot more capital outflows from the stockmarket. Foreign investors are choosing to cut their losses by pulling out and moving to more stable markets. We have already started to see the market index come down,” said Daniel Kuyoh, research analyst at Kingdom Securities.
In the week ended July 10, the NSE 20-share index fell below the 4,700 mark for the first time in 22 months.
The benchmark index lost 149 points to close the trading session at 4,690, down from 4,839 at the beginning of July.
According to Mr Kuyoh, Kenya is spending more on capital intensive projects such as the standard gauge railway than it had budgeted for, while its exports are facing pressure in the international markets, contributing to exchange rate pressures.
Kenyan tea is fetching low prices due to a glut in the international market, while the country’s tourism sector is also struggling.
According to Geoffrey Odundo, the NSE chief executive, pressure on the shilling could ease with the resolution of the Greek debt crisis.
“I think the pressure on the shilling will ease. The dollar has been strengthening globally but with the resolution in Greece, we think the trend could be reversed,” said Mr Odundo.
In Rwanda, the stockmarket has not suffered as much as its regional counterparts due to less pressure on the Rwanda franc.
“The Rwanda franc has not suffered as much as other currencies in the region. We have not seen a large exit of foreign investors from the market. The few that are selling are just retail investors looking for liquidity,” said Robert Mathu, executive director of the Capital Markets Authority of Rwanda.
Last week the Bank of Uganda raised its policy rate by 1.5 percentage points to 14.5 per cent to mitigate against the weakening shilling and ease inflationary pressures.
“The Bank of Uganda recognises that there are heightened risks of inflation. The BoU will continue to assess these risks and take appropriate action,” said Prof Emmanuel Tumusiime-Mutebile, Governor of BoU.
According to Nicholas Malaki, senior investments manager at PineBridge Investments East Africa, a weak currency could see investors move into perceived safe havens such as interest-earning assets.
“Because of the fluidity of capital, I would expect to see the major impact being on foreign short-term investors who have fluid capital to move around several markets,” said Mr Malaki.
The East African
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