Tuesday January 4 2011

USE leads Sub-Saharan Africa in All Shares Index 2010

USE leads Sub-Saharan Africa in All Shares Index 2010

A trading day at the USE. 

By Martin Luther Oketch

After suffering from a drastic decline in market activities in 2009, the Uganda Securities Exchange bounced back on a strong note out performing all stock exchanges in Sub-Saharan Africa last year in terms of All Share Index.
The Chief Executive Officer of USE, Mr Joseph Kitamirike, told Business Power that Uganda’s All Share Index (ALSI) went up by 74 per cent between January and November 2010 compared to a similar period in 2009, which was below 50 per cent.

“Turnover is up 51.6 per cent to Shs27.6 billion from January to November 2010, compared to a similar period in 2009, when turnover stood at Shs18.2 billion. Daily average turnover is up 56.3 per cent from Shs132 million to Shs207 billion per day,” he said.

The pickup in USE’s performance is being supported by the recovery in the global financial system leading to investor confidence in the market locally and internationally.

The impressive performance of USE is also attributed to high economic growth and low inflation leading to high returns on investments and the introduction of electronic trading systems, Settlement and Clearing Depository (SCD), which USE launched in the first quarter of 2010.

SCD has made trading much easier and faster than the manual trading system, which was characterised by inefficiencies and high risk.

“The SCD system is linked with an e-mail notification system that alerts the investor when there is trading activity in the respective accounts,” he said.

“A total of 4,000 out of 35,000 accounts have been demobilised. 68 per cent of these are by East African investors; 22 per cent by local investors and 10 per cent by foreign investors. Since implementation of the SCD system, over 30 million shares have been cleared through the system.”
High economic growth and high returns on investments have proven to be the driving factors leading offshore investors in frontier markets like Uganda.

Uganda’s GDP growth for 2010 is estimated at 5.8 per cent while the GDP growth rate for 2011 is projected to be 6.4 per cent.

This positive market development acts as a centre of attraction for offshore investors as they try to reduce the risk associated with investing in markets where prices can fall or rise depending on the prevailing economic condition.

The USE is now 12 years old since its establishment in 1998, however, it still remains one of the smallest stock exchanges in Africa but quite vibrant in market activities and profitability.
This year, USE witnessed the listing of the National Insurance Corporation (NIC) and the cross listing of the Nation Media Group making the number of companies listed on USE 13 with six cross listed firms.

On the debt market (Fixed Income Securities Market), the central bank is actively issuing treasury bonds on behalf of the government. The number of government bonds now stands at 33 with different maturity ranging from two, three, five and 10 years. The number of government bonds has continued to outnumber that of corporate bonds which are just five.

During the second quarter of 2010 the turnover in government securities amounted to Shs468,675,000,000 up from a turnover of Shs353,63, 000,000 recorded in the previous quarter. Unlike the corporate this saw no active during the same period.

On the future prospects of USE, Mr Kitamirike says the USE is liaising with the Central Bank of Uganda to establish a link with the Real Time Gross Settlement (RTGS) system, reviewing their capital market legal regime with a view to developing simpler laws and coming up with a distinct piece of draft legislation.

The other new initiatives being undertaken by the USE Mr Kitamirike said are that USE is working on developing a local index to capture the trading activity of domestic companies.
Mr Kitamirike disclosed that new listings are expected between the end of quarter 4 of 2010 and end of 2011 and these includes Tullow Oil and Umeme. Centum, a company listed in Kenya, is expected to cross list in quarter 1 of 2011 and Standard Chartered Bank is also set to issue a another corporate bond.

As of way of comparison, the Nairobi Stock Exchange (NSE) comes second to Uganda Securities Exchange in terms of high index in Africa as of November. The NSE’s good performance is also attributed to remarkable recovery in the financial market besides other new initiatives that has been by the stock exchange management aimed trading more fixable.
Mr Peter Mwangi, Chief Executive of Nairobi Stock Exchange (NSE) said: “Market performance for the third quarter, both for the bonds and equity markets has picked up considerably. The NSE 20 Share Index is up 23 per cent year to date (November 2010). Market capitalization is up 18.7 per cent is currently at Kshs1,169 Billion ($ 14.3 Million),”

The good performance in NSE is also being supported by offshore investors to due to high economic growth, Mr Mwangi point out that the estimated GDP growth rate for the first half of 2010 is 5.2 per cent with a projected GDP growth rate of 6.2 per cent for 2010. The 91 and 182 treasury bill rates are also on a decline, standing at 2.3 per cent and 2.7 per cent respectively as of the end of November 2010.

Foreign investment in Kenya’s capital markets industry is also very active, Mr Mwangi said that foreign turnover year to date currently stands at KShs42 billion, representing an increase of 82 per cent over a similar period in 2009.

Mr Mwangi said in Kenya bond market turnover year to date is Kshs460 billion, representing an increase of 315 per cent over a similar period in 2009.

Available information indicates that the NSE has commenced a Prospective Issuers Forum, which aims to bring together in-depth knowledge and insight from some of the key advisers experienced in guiding companies to listings.

On the programmes that has been initiated by the management of the NSE to lay foundation base for smooth trading, Mr Mwangi spelt out that Nairobi Stock Exchange continues to make significant progress in the process of Demutualisation.

He said the NSE has formed a joint consultative committee with the Capital Markets Authority (CMA) to develop an SME market segment that will enable these enterprises to access capital that is necessary for them to grow their companies,” he said.

In the budget of 2010/11 Kenyan government said that government is going to amend The Finance Bill as a way of strengthening Kenya’s financial market. Mr Mwangi revealed that NSE is awaiting the enactment of The Finance Bill 2010/2011 and specific amendments to The Capital Markets Act. While the process of implementing a standardized Broker Back Office (BBO) system is ongoing.

“A service provider has been selected and the system is expected to be in place by the first quarter of 2011,”he said.
For the case of the Dar es Salaam Stock Exchange (DSE), Mr. Gabriel Kitua, Chief Executive Officer of the Dar es Salaam Stock Exchange (DSE) said the All Share Index (DSEI) recorded an increase of 0.29 per cent from 1,170.8 points at the end of quarter 2 to 1,174.18 points in quarter 3.

Mr Kitu explains that total market capitalization was TZS. 4,938 billion while equity market turnover was TZS. 7.39 million at the end of quarter 3 of 2010, adding that foreign investor participation continues to grow with 32 per cent of the total turnover at end of quarter 3.

“In the bond market, government bonds worth TZS. 60.26 billion were traded in quarter 3 of 2010. There is an indicative increased interest for long term investment instruments. During this same period, the government issued treasury bonds worth TZS. 240.57 billion with different maturity dates,” said Mr Kitu.
In East Africa there four stock markets with the Rwandan being the youngest of the four capital markets in EAC, Mr Celestin Rwabukumba, Operations Manager, the Capital Markets Advisory Council (CMAC) Rwanda said that the process of separation of the Regulatory and Stock Exchange arm of the Rwandan capital markets has significantly progressed.

“This separation will result in the formation of the regulator and the exchange. The board of the Rwandan Stock Exchange (RSE) has already been appointed and resolutions on the capital structure resolutions have been passed.

It is expected that the Rwandan Stock Exchange will be up and running by January 2011, in time to list the BRALIRWA IPO shares. The Capital Markets Authority Council (CMAC) is working with CDSC Kenya and the Central Bank of Rwanda to work on a settlement process,” he said.

Mr Rwabukumba, said the estimated GDP growth rate for 2010 is between 7 %- 10%.The annual headline inflation rate is currently at 3.7 per cent as of September 2010. The equity market in the period running from April 2010 to November 2010 has recorded a total turnover of RWF 12,699,060 from 73,000 KCB shares traded on the ROTC market 42 deals. NMG has traded 1,000 shares with a turnover of RWF 1,196,000,” he said.

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