This follows claims by the stockbrokers who argue that the country’s stocks are under priced compared to the same shares around the bloc, hence denying locals hefty gains. Proponents of the review say that the 60 per cent is blocking the market from operating at full potential as the financial muscle by the locals has almost reached summit.
For example, stockbrokers said that in 2011 TBL shares traded at price earning ratio (PER) of 4.7 per cent compared to EABL’s 20.1 per cent, implying that TBL was grossly undervalued. The need to have the law review was reflected openly during the recent 120bn/- mini-primary offer of TBL shares, in which most local investors participated, hoping to make a quick gain during the secondary market, because the IPO was also open to foreigners.
“We anticipated that since the regulator gave a waiver to allow foreigners to participate in the mini-TBL offer, the same would have been extended to the secondary market but that was not the case,” said a stock broker. They urged that locking out foreigners has far reaching impact as the number of overseas investors in the first quarter of this year went down compared to the previous period.
Dar es Salaam Stock Exchange (DSE) data show that foreign participation dropped in the first quarter of this year to almost 11 per cent or 1.354bn/- compared to local participation of 12.573bn/- turnover posted during the period under review. Last year the participation was almost 50/50. But the Capital Markets and Securities Authority (CMSA) says that the legal restrictions on foreign participation at the DSE were meant to give an opportunity and encourage locals to participate in the capital markets.
“This is particularly important given our social economic background which needs to give room for the locals to gain awareness, capacity and confidence for securities market participation,” Mr Charles Shirima, CMSA’s Principal Communication Officer said. Another reason is to enable the regulator to maintain the cap which is common in emerging markets to counteract the volatility effects of large inflows and outflows.
“This can exert a lot of pressure in shallow markets,” Mr Shirima said. But while Tanzania limits foreign control to 60 per cent, in Kenya the cap is at 75 per cent and Uganda and Rwanda foreigners can own up to 100 per cent of a local listed company. DSE wants CMSA to be given powers to waive the restrictions to facilitate trade at the bourse unlike the current situation where it has to apply to the central bank for approval.
“At least CMSA should be given waiver powers to speed up things or extend the cap rate from 60 per cent to say 75 per cent or 100 per cent,” Mr Gabriel Kitua, DSE’s CEO said. In last week’s meeting over the issue, Tanzania Stock Exchange Brokers Association (TSEBA) requested the CMSA to initiate moves to increase or waive the 60 per cent cap for foreigners.
Nevertheless, CMSA suggested that TSEBA should suggest measures that are likely to achieve long term market liquidity objectives rather than short term solutions. As the bell rung to end the market, CMSA accepted the request to amend the laws and regulations which seem to work against the market. CMSA says that stockbrokers should discuss the issue using their umbrella associations.
CMSA said that by so doing, the move will increase chances of upstairs trade and dark pool, a trend of buying or selling transaction for an exchange-listed stock that, is not executed through the bourse.