DSE rally hinges on domestic investor demand

DAR ES SALAAM: THE stock market is gaining momentum as domestic investors cushion heavy foreign selling, with major banking counters leading the advance.

According to Advisory and Research Manager at Zan Securities Limited, Mr Isaac Lubeja, the equity market is entering the coming weeks with a more constructive tone, although the divergence between strong domestic price appreciation and elevated foreign selling suggests the rally should be viewed with caution.

“The increase in market activity points to renewed investor interest, particularly in large-cap counters. However, the concentration of liquidity in a few stocks means the sustainability of the advance will depend on whether participation broadens beyond the dominant banking counters,” he said.

The strong rise in domestic market capitalisation despite substantial foreign net selling points to growing resilience among local investors. This could become increasingly important if foreign selling persists, Lubeja said. However, sustained gains will require domestic liquidity to move beyond a handful of heavily traded counters and into a broader range of listed companies.

The coming weeks could therefore provide an important test of the market’s underlying depth. If turnover remains elevated while participation broadens across sectors, the recovery would offer stronger evidence of improving sentiment.

A rapid decline in turnover accompanied by continued concentration in a few large counters, however, could indicate that the rally is becoming increasingly narrow.

The banking sector is likely to continue influencing the direction of the DSE in the short term, with NMB and CRDB dominating market liquidity and attracting investor attention. The preference for large, liquid financial institutions is likely to persist as investors favour counters capable of absorbing sizeable orders.

However, the scale of recent gains could also trigger short-term profit-taking. Mr Lubeja said investors should focus less on temporary declines in banking stocks and more on whether selling is absorbed at relatively stable price levels.

ALSO READ: Aquaponics tech boosts food security, family income, nutrition through fish and vegetable farming

Continued accumulation following profit-taking would provide a stronger signal of underlying demand. After the recent broad appreciation, investors are likely to become more selective, potentially shifting the next phase of the market from a broadbased rise to rotation between sectors and individual counters.

Investors who have benefited from recent gains could reallocate towards companies whose valuations have yet to fully reflect their earnings potential.

This could create opportunities among fundamentally sound counters outside the most actively traded banks, particularly where improving liquidity supports institutional participation. Industrial and consumerfacing companies will therefore be worth watching.

Strength in these segments alongside continued banking gains would provide stronger evidence that the market’s positive momentum is becoming broad-based. The government securities market is also showing signs of changing investor preferences.

Stronger demand for longerdated Treasury bills, alongside declining yields, suggests investors may be positioning for an environment where shortterm returns become less attractive. If the trend persists, investors could increasingly lock in available yields at the longer end of the curve rather than repeatedly rolling over shortterm instruments.

This could support secondary-market demand for government bonds, although investors will need to balance the benefit of locking in current yields against the price risk of longer-duration securities if market rates reverse.