East African capital markets to stay weak for longer

Analysts project the region’s capital markets will remain weak due to depressed economies.

Trading data from Kenya’s Capital Markets Authority shows that the Nairobi Securities Exchange (NSE) equity market turnover dropped to Ksh140 billion ($1.36 billion) between January and November 2016, from Ksh194.2 billion ($1.89 billion) last year.

The drop in turnover is partly blamed on reducing investor confidence in the Kenya capital markets following the failure of Imperial Bank, Chase Bank and Dubai Bank.

It is estimated that Ksh6.8 billion ($66.14 million) in debts and interest on bonds was locked in the banks.

The policy decision to cap lending rates to 4 per cent above the Kenya Banks’ Reference Rate has also reduced investor’s appetite for financial and investments sector listed companies’ earnings.

“The equity markets were depressed during the year and it is projected that this will decline further due to generally depressed economy as manifested in profit warnings announced by a number of blue-chip companies,” an analysis by experts at CMA Kenya point out.

The analysis further points out that: “This was exacerbated by the dip in investor confidence in the capital markets due to the failure of Imperial Bank, Chase Bank and Dubai Bank, with significant funds raised from retail and institutional investors from Corporate Bond issues by Imperial Bank and Chase Bank locked in, together with investments in Unit Trusts.”

Rwanda

The Rwanda Stock Exchange (RSE) turnover also dropped by 17.3 per cent between January and November, to $40.8 million, from $49.3 million in 2015.

“The equities markets have been hit in the past two years everywhere not only in Rwanda. Globally things are not that good either as the spillovers from the commodity crunch and dollar hardening against the local currencies is at work at least for the short to medium term,” said CEO of the RSE, Celestin Rwabukumba.

But the expected I&M Bank initial public offer (IPO), in the first quarter of 2017 in which the Rwandan government is floating its 19 per cent stake is set to create momentum on the RSE.

“We are only waiting for the end of year audited financial results of I&M bank to be included in the prospectus,” a deal maker closely following listing said.

Dar bourse

In Tanzania, the expected listing of telcos on Dar es Salaam Stock Exchange is expected to rally investors seeking a stake in some of the profitable companies in the country.

Electronic and communications companies registered in Tanzania are required by law to float their shares to the public and subsequently list on the DSE. So far two, Tigo Tanzania a subsidiary of Swedish telecoms and media group Millicom International Cellular is reported to have sought permission from Capital Markets and Securities Authority.

Vodacom Tanzania, part of South Africa’s Vodacom Group is also in advanced stages to list ahead of the December 25 deadline for all telcos to list at least 25 per cent of the shares.

Like most regional bourses, the DSE index dropped marginally by 0.19 per cent to 2,477.24, from 2,481.99, while the NSE All Share Index dipped by 2.70 per cent from 140.6 in the first six months of 2016.

To rally more investor confidence on the NSE, the CMA is recommending faster implementation of turnaround strategies by listed firms and issuers of securities to the public, particularly in the area of corporate governance.

Analysts are calling for a swift and decisive enforcement action for non-compliance with market practices.

The combination of new listings, continuous investor education plus market diversification could prop up the markets from dipping further, CMA analysis suggests.