Capital markets enter a period of cautious optimism

DAR ES SALAAM: TANZANIA’s capital markets have entered August with mixed signals, as equity trading activity weakened sharply while demand for long-term government securities remained exceptionally strong. The contrasting trends point to a market becoming more selective, with investors closely watching interest rates, foreign participation and major corporate actions for direction in the coming weeks.

On the equity side, total market turnover declined by 60.07 per cent week-on-week to 25.77bn/-, from 64.53bn/- recorded in the previous week. The decline was accompanied by a 47.95 per cent fall in the volume of shares traded, from 15.88 million shares to 8.27 million shares.

The sharp contraction suggests that investors became more cautious during the week, resulting in lower trading activity and participation. However, the decline in market activity did not translate into significant broad-based losses, suggesting that underlying market stability remained relatively intact.

Trading was heavily concentrated in a few counters, particularly the banking sector. NMB led the market with turnover of  11.34 bn/-, accounting for 44.01 per cent of total market activity, while CRDB followed with 10.68bn/-, representing 41.43 per cent.

Together, the two banks accounted for approximately 85.4 per cent  of total turnover, reinforcing the dominant role of banking stocks in providing liquidity to the Dar es Salaam Stock Exchange (DSE). Vodacom Tanzania ranked third with 1.74bn/-, equivalent to 6.76 per cent of turnover, while KCB and MCB contributed 1.56 per cent and 1.41 per cent, respectively.

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The concentration of activity in NMB and CRDB means that movements in the two banking counters can have a significant influence on overall market liquidity and investor sentiment.

Foreign investor participation remained another area of focus. The market recorded a net foreign outflow of 3.29bn/-, compared with 11.89bn/- in the preceding week. Although the outflow narrowed by 72.37 per cent, foreign investors remained net sellers.

The reduction in the outflow is nevertheless encouraging. If the trend continues and foreign investors eventually return as net buyers, it could provide additional liquidity and support market valuations. The recent decision to open Tanzania’s government securities market to all non-resident investors could also improve international investor sentiment towards the country’s financial markets.

Through the Foreign Exchange (Amendment) Regulations, 2026, the Bank of Tanzania has officially opened the government securities market to non-resident investors worldwide. Previously, participation in Treasury bills and Treasury bonds was restricted to residents of the East African Community, the Southern African Development Community and the Tanzanian diaspora.

Under the new framework, international investors can access domestic government debt through approved Central Depository Participants. The reform is expected to broaden the investor base, deepen Tanzania’s financial markets and strengthen the country’s position as an investment destination.

The strength of demand for government securities was already evident in the latest treasury bond auction. On August 5, the Bank of Tanzania offered 289.93bn/- through the reopening of a 25-year treasury bond carrying a 13.25 per cent annual coupon.

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The auction attracted bids worth 1.245237tri/-, resulting in a subscription rate of 429.50 per cent. The Bank accepted bids worth 289.93bn/-, equivalent to 23.28 per cent of total bids received.

The strong demand came despite the coupon rate remaining unchanged, indicating continued appetite for long-term government securities. The minimum successful price increased to 113.7770 from 109.2979 in the June auction.

At the same time, the weighted average yield declined by 40.62 basis points, from 11.8861 per cent to 11.4799 per cent. The decline extends a trend that has been evident since January 2025 and points to strong investor demand for long-term government paper.

The secondary government bond market, however, experienced a slowdown. Turnover fell by 39.04 per cent week-on-week, from 84.22bn/- to  51.34bn/-, while the number of trades declined by 35.48 per cent, from 155 to 100.

The decline appears to reflect a temporary slowdown in institutional liquidity following recent primary-market activity rather than a fundamental deterioration in investor appetite for government securities.

Meanwhile, the equity market has its own major catalyst in the NMB Bank share split. The Capital Markets and Securities Authority approved a 1:10 share split for NMB Bank ordinary shares on July 24, with the official announcement issued on July 27.

Under the corporate action, each existing share will be subdivided into ten ordinary shares, increasing the bank’s listed shares from 500 million to five billion. Post-split trading is scheduled to begin on August 24.

The move is intended to make NMB shares more affordable and easier to trade while broadening participation among retail investors. With NMB already accounting for 44.01 per cent of weekly market turnover, the split is likely to attract considerable investor attention.

The period leading up to the split could therefore be characterised by increased positioning and volatility. Cum-split trading is expected to continue through August 19, followed by a two-day suspension before post-split trading resumes on August 24.

The key question is whether the lower nominal share price will translate into significantly greater retail participation. If it does, NMB could see increased trading activity, although the development may initially reinforce rather than reduce the market’s dependence on a small number of highly liquid counters.

Overall, Tanzania’s capital markets appear to be entering a period of cautious optimism. The sharp fall in equity turnover is a concern, but the relatively small 0.17 per cent decline in total market capitalisation to 36.47tri/- suggests that the reduction in activity has not resulted in broad-based price pressure. Domestic market capitalisation declined by 0.49 per cent to 24.93tri/-.

In the coming weeks, investors will closely watch whether foreign investors return to the equity market as net buyers and whether the 60.07 per cent decline in equity turnover was merely temporary or signals a longer period of subdued activity.

For fixed-income investors, the strong treasury bond subscription and the opening of the market to global investors provide a constructive backdrop. For equity investors, the NMB share split is likely to remain the dominant near-term catalyst.

The overall outlook therefore remains broadly range-bound to moderately constructive. Long-term bond yields are likely to remain around current levels unless a fresh surge in demand produces another significant shift, while equity-market direction will depend heavily on the response to the NMB split and the pace at which foreign investors return.