MARKET turnover indicates how much trading activity took place on a given business day in the market as a whole, the Dar es Salaam Stock Exchange (DSE) equity trading activities has stemmed 4.0bn/- transacted between investors in September, lower than 20bn/- recorded in August.
This relatively low turnover is attributed by reduced activities in the block trade pre-arranged board whereby only 2.8bn/- was transacted in September compared to 18.7bn/- transacted in August. Turnover in a stock indicates better liquidity which means that it is easier to sell the stock in the market.
Stocks that recorded turnover higher than 100m/- in the period include: Vodacom 1.2bn/- , TBL 1.06bn/-, NMB Bank 673m/-, CRDB Bank 637m/-, Jatu 296m/- and Twiga Cement 131m/-.
The stock market was bearish in September as the Tanzania Share Index lost 31.72 points or 0.8 per cent contributed by slightly fall in price of NMB and CRDB whereby each lost 4.0 per cent and 6 per cent respectively.
Why is stock market liquidity important?
Liquidity describes the extent to which an asset can be bought and sold quickly and at stable prices. In simple terms it is a measure of how many buyers and sellers are present, and whether transactions can take place easily.
If there are only a few market participants, trading infrequently, it is said to be an illiquid market or to have low liquidity. Usually, liquidity is calculated by taking the volume of trades. As indicated above total turnover for the DSE market for locally listed stocks was 4.0bn/-.
The DSE has shown high levels of liquidity arising due to significant level of trading activity owing to high supply and demand for stocks, as it is easier to find a buyer or seller. Most stocks that have traded during the period include ones that have announced dividends as investors are looking to cash in on equity returns as the fixed income market continues to suffer from low yields.
Key drivers for the stock market growth are:
• Stronger earnings expectation – We expect stronger earnings expectation in the Industry & Allied (IA) Banks, Finance & Investment sectors to stimulate demand for stocks.
• Increased foreign investor participation – we expect the recovery and stable outlook of the Tanzanian currency supported by improving econom conditions to boost investor confidence in the stock market and create more demand for stocks.
From a valuation perspective, Industry & Allied (IA) Banks, Finance & Investment the banking, sectors are highly attractive with some key listed companies in the sectors trading at attractive metrics.
Enduring good yearly performance of the stock market, our outlook appears to lean favorably as we expect the stock market indices to replicate positive growth trend as we head into September.
High demand for Jatu, DSE, CRDB, TOL and Twiga Cement will likely have an effect on their prices in October.
Fixed Market Primary market
The primary market activities dwindled in the month of September as investors seemed averse from low yield environment with all three auctions of the 15-, 5- and 10-year treasury bonds under-subscribing.
This is an indication that investors are targeting the longer 20 year and 25- year tenure bonds which have a relatively higher yield, this coming of the back drop of the Bank of Tanzania Monetary Policy Committee statement in its last bi-monthly meeting indicating that the current monetary policy measures will still be implemented through the months of September and October. We’re likely going see Treasury bond auctions under subscribing in the coming auctions except for 2-year, 20- year, and 25-year auctions.
In the secondary market, the value of bonds traded increased by 43 per cent to 256bn/- from 179bn/- recorded last month, with the 20-year bond representing 117bn/- or 45 per cent of the total value traded in September, while in the corporate bonds of 217m/- were traded during this period.
We maintain our expectation of activity in the secondary bond market being driven by investors hunting for higher yields and profit-making opportunities.
Expansive monetary policy direction by the central bank will continue to put downward pressure across the yield curve, in the near term.
Outlook Positive economic momentum
Expansive monetary policy by the central bank will accelerate economic growth and improve market liquidity; a low lending interest environment will lower borrowing cost making equities the most attractive option in risk assets.
We expect the remainder of 2021 to be characterized by sector and stock selection as the market transitions to an economic expansion and stronger focus on valuations; moreover, we continue to see improving economic environment as the expansive monetary policy by the central bank will accelerate economic growth and improve market liquidity.
Low Treasury bond yields
Fixed income yields will continue to fall. We forecast to continue to see a low yield environment as the central bank continues to implement expansive monetary policy. We expect the central bank to remain cautious and diligent about maintaining expansionary policy.
Article by Zan Securities, a capital markets and securities authority licensed dealer and a member of the Dar es Salaam Stock Exchange (DSE). The firm is currently one of the leading stock market dealers in terms modern ICT infrastructure and branch network from Zanzibar and Tanzania mainland.