Tick size reforms revive stock volatility

FOLLOWING a week of extraordinary activity, the Tanzanian equity market saw a predictable normalisation in turnover for the week ending June 27th, 2025.

Total equity turnover contracted by 55.38 per cent to 13.95bn/-, a figure that, while lower, provides a clearer signal of the market’s organic liquidity.

Despite the moderation, market breadth remained healthy with 20 counters trading, though capital flows demonstrated a significant concentration, a theme indicative of investor preferences in the current macroeconomic climate. The week’s liquidity was overwhelmingly channeled into the banking sector, which continues to act as the primary barometer for investor sentiment.

The top three movers, CRDB, NMB, and KCB, collectively commanded a remarkable 97.04 per cent of the total weekly equity turnover. CRDB Bank led this concentration with a turnover of 10.53bn/-, followed by NMB Bank at 2.30bn/- and the crosslisted KCB Group at 705m/-.

The high turnover in both CRDB and NMB was substantially driven by block trades, underscoring persistent institutional interest in accumulating positions in these core financial institutions. In stark contrast, the remaining 15 traded stocks accounted for a mere 1.16 per cent of the turnover, highlighting a decisive flight to quality and liquidity by major market participants.

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The performance of individual equities reveals a market in transition. Tanga Cement (TCCL) was the week’s standout performer, with its share price appreciating by a significant 15.43 per cent to close at 2,020/-, suggesting a fundamental re-rating is underway.

Other notable gainers included MKCB (+5.77 per cent) and DSE (+3.57 per cent), while the banking sector leaders CRDB (+1.27 per cent) and NMB (+1.21 per cent) posted modest gains. These movements in the banking sector are likely precursors to a broader rebound as investors begin to position themselves in anticipation of favorable semi-annual earnings results for the period ending June 2025.

A critical underlying theme is the emergence of renewed, and arguably healthier, volatility in the stock market, as can be seen by the fact that stocks that had laid dormant for a while, are beginning to show changes. This is a direct consequence of structural market reforms, particularly the DSE’s recent adjustment of tick sizes.

Vodacom (VODA), which gained 2.04 per cent, is a prime example; after years of price inertia, the stock now exhibits more dynamic price discovery, a welcome development for market efficiency.

This increased volatility is not a sign of instability, but rather a feature of a market that is becoming more responsive and sophisticated. On the other side, Precision Air (PAL) led the laggards with a 13.89 per cent decline, followed by other corrections in MCB (-4.00 per cent) and JHL (-3.73 per cent), reflecting a market that is actively differentiating between assets as the dividend season fades.

The most significant event of the week unfolded in the primary fixed income market. The final Treasury bond auction for the fiscal year ending June 30th, 2025, a 15-year government paper, was summarily cancelled, with the Bank of Tanzania rejecting all tendered bids.

This action should not be interpreted merely as a failed auction, but rather as a deliberate policy signal. The central bank has unequivocally demonstrated that it is willing to forgo short-term government funding to maintain its long-term policy of yield compression.

By refusing to capitulate to market bids demanding higher yields, the Bank of Tanzania has drawn a clear line in the sand, reinforcing its commitment to fostering a lower interest rate environment.

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The direct implication is that the coupon rates in the next fiscal year’s issuance calendar are now likely to remain at current levels, or could even be revised slightly lower. The secondary bond market responded with a modest increase in activity, with total face value turnover rising to 168.86bn/-.

The total bond turnover of 190.90bn/- indicates that a majority of transactions occurred at a premium, reinforcing the strong demand for existing, higher-coupon government paper. Longer-duration bonds remained the most sought-after, with the 20-year (15.49 per cent coupon) and 25-year (15.75 per cent coupon) papers dominating trading volumes.

The continued, albeit smallscale, trading of corporate bonds from CRDB, NMB, and NBC provides further evidence of a slowly diversifying credit landscape. In a further structural development, the Dar es Salaam Stock Exchange issued Circular No. 76, announcing the introduction of Value Added Tax (VAT) on its fees, effective July 1st, 2025. The policy has a dual mandate.

Primarily, it will serve as a revenue stream for the government. More strategically, however, the structure of the tax is designed to catalyse technological adoption. A standard VAT rate of 18 per cent will apply to DSE fees, but a lower rate of 16 per cent will be applied to transactions executed via the DSE’s electronic gateway, including its mobile trading platform.

This two-tiered system creates a direct financial incentive for brokers and investors to migrate towards digital channels, effectively using fiscal policy to accelerate the digitalisation of Tanzania’s capital markets and reinforce the growth of its burgeoning digital finance ecosystem.