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Market rigidity limits opportunities, renders market unattractiv

THE week that ended on 10th January 2020 marks the seventh consecutive week of a static Tanzania Share Index (TSI) and the domestic market capitalization.

TSI and domestic market cap are still at 3,431.10 points and 9,010.58bn/- (3.94bn US dollar) respectively. The current market rigidity is unhealthy for the market since it limits opportunities and renders the market unattractive.

On the other hand, the All Share Index (DSEI) gained 25.36 points following a rally on the total market capitalisation which grew by 1.23%. The DSEI closed the week at 2,090.44 points while the total market capitalisation closed at 17,355.73bn/- (7.55bn US dollar).

The rally on the DSEI resulted from three cross listed counters namely EABL which grew by 4.05%, JHL which went up 2.53% and KCB which surged by 1.64%. NMG dropped by 3.33% but was not enough to pull the DSEI down due to the weight magnitude of EABL and KCB which both surged.

The Nairobi bourse, primary exchange for all cross listed equities on DSE, is catching speed after having grown by 22% during 2019 despite making through the year mostly on the lower note due to decreased foreign investment.

Apart from Nairobi, other exchanges, for instance in Uganda, Rwanda, Nigeria and South Africa, are all gaining momentum as interest from foreign investors is returning into the markets due to attractive multiples resulting from lower prices.

Most regional markets fell during mid-2018 after foreign investors evaded exchange rate risk in emerging markets. Regional markets began recovering since mid-2019 following lucrative multiples. Total equity turnover grew five folds week on week, to record a total of 2.04bn/- ($0.89mln) from previous week’s 418.1m/- ($0.18mln).

The top mover remained to be TBL which accounted for more than 98% of the total equity turnover realized during the week. Foreign investors remained net buyers, with a net inflow of 200,000/- ($87) while accounting for 98.16% of total investments into the market.

On the other hand, foreign investors accounted for 98.15% of the total divestments from the market while local investors accounted for the balance of both sides.

Money Market, Bills and Bonds

Activities on the Interbank Money Market (IMM) slowed down by 18% after the total value traded fell to 169.7bn/- ($73.78mln) from the previous week’s 206.9bn/- ($89.96mln).

The weighted average interbank rate gained 56bps during the week. The interbank rates shot to above 4% since the beginning of the week, while tightening the spread to zero as of Friday 10th January 2020. The interbank rate closed the week at 4.2% compared to 3.64% during the previous week.

The 364 days tenor was substantially undersubscribed by 77% during the Treasury bills auction held on 8th January 2020 while the 35 days, 91 days and 182 days tenors were all oversubscribed by almost 100%. The Bank of Tanzania offered a total of 107.2bn/- ($46.61mln) to the public and received 23 bids worth 34.41bn/- ($14.96mln).

The Bank of Tanzania accepted 20 bids worth 28.8bn/- ($12.52mln) while the weighted average yield to maturity (WAYTM) dropped by 20bps. The total WAYTM realized was 5.48% compared to 5.68% realized in the previous auction.

The drop in WAYTM was a result of increased interest in other tenors different from the 364 days tenor which gained 3bps on its WAYTM.

Currency Market

The shilling remained resilient during the week, with a slight depreciation by 1 pip to close the week at a weighted average exchange rate of 2,299.97/US dollar compared to 2,299.96/ US dollar at the end of the previous week.

The shilling closed the week under review with a very narrow spread of 5 pips as the shilling held strong. The total value of transactions traded on the Interbank Foreign Exchange Market (IFEM) dropped by 64.8% to a total of 13.2m US dollar compared to 37.54m US dollar during the previous week.

The drop marks a third week in a row of declining volumes, possibly due to dropping demand for foreign currency as we mark the end of December festivities.

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Author: ORBIT SECURITIES

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