Equities were still under pressure during the week that ended on the 30th September 2022, where both major indices saw a shed of points. The Tanzania Share Index (TSI) lost 14 points to close the week at 3,863.75 points while the All Share Index (DSEI) dropped by 6.21 points to close the week at 1,867.98 points.
The top loser for the week was the Dar es Salaam Stock Exchange (DSE) which dropped by 9% to close off at a price of TZS 1,820/- from previous week’s TZS 2000/-.
Other domestic dropping counters were Tanga Cement (7.9%), Twiga Cement (2.06%) and CRDB (1.28%). Only one counter (KCB) from the cross listed board was up for the week, climbing by 3.95% while National Media Group (NMG) and East African Breweries (EABL) both dropped by 4.41% and 1.45% respectively.
Suppression of equity prices is a global phenomenon as fears of a global recession grow by the day while central banks around the world are still peddling on raising interest rates to tame a growing inflation.
Earlier during the week, the European central bank raised interest rates for the first time in more than a decade while the U.S Federal Reserve is expected to put on another 75bps as soon as next week as the S&P closed the third quarter at a two years’ low.
In the U.S, indicators of an economic slowdown are already apparent with multiple corporates reporting a drop in revenue, citing economic uncertainties and consumers pull back, while the services sector has reported lowest activity since May 2020, and lowest since 2009 when adjusted for early months of the pandemic.
In Europe there is a rise in unsold stock as sales of manufactured good drops for the first time since 2020. With recession fears, expectations of lower corporate earnings and waning currencies against the USD, the result is equities are falling all across the board.
Increased interest rates are raising Treasury yields especially in the US, emerging as safe havens for fund managers looking to preserve value in a downtime.
Despite the gloomy global overview and drop in equity prices on the DSE, fundamentals of domestic listed companies are still looking strong in regard to global developments, but we wait a round of quarter three corporate earnings reports in early October to determine of any impact apart from rising input prices.
As the US awaits consumers’ report during the next week, Tanzanian markets await the inflation report set for a most likely release on the 10th October 2022, to gauge if the slight drop in the price of fuel has any positive impact to ease the headline inflation.
During the week, the Monetary Policy Committee (MPC) maintained the stance that the central bank should ease on the speed of expansionary policies while striking a balance between taming inflationary pressures and maintaining economic growth.
All the benchmark Treasury bonds yields in the secondary market except for the 15 years and 25 years bonds were up at the end of September compared to the end of May.
Treasury yields have also been consecutively rising in the 20 years and 25 years auctions during the year, with the successful price for the 20 years bond averaging at a discount during the week’s auction, for the first time after the coupon rates were reviewed back in April 2022.
Interbank rates have gradually grown from below 2% at the end of May to an average of 4.5% at the end of September while at TZS 95.6bln, the total monthly transactions in the interbank money market for September were the lowest since March 2022, down from TZS 464.4bln just in June 2022.
Therefore, despite a modest statement by the MPC, it seems the market is already inducing slight contractions, we just hope it does not become officially adopted. On the other hand, the Tanzanian Shilling has been relatively holding ground against the greenback in the Interbank Foreign Exchange Market (IFEM), with a mere depreciation of 0.4% since the beginning of the year.
Equity prices are expected to still be under pressure in the near future due to global developments as well as seasonality of the market. The first and second quarter are usually bullish because of release of annual reports, dividend announcements, and dividend payments.
The third and fourth quarter lack such excitement hence experience relatively suppressed prices. On top of that, this year has an unusual low participation of foreign investors. Only 22% and 21% of investments and divestments during the week were foreign, mostly involved in the NMB prearranged block transaction, while the net foreign inflow stood at $10,000.
The total equity turnover for the week was TZS 2.97bln, way up from previous week’s TZS 890mln. CRDB accounted for 72% of the total equity turnover for the week, followed by NMB which accounted for25%, both counters boosted by prearranged block transactions.
Block transactions accounted for 96% of the activities on the two counters and 86% of the total activities on the market during the week. It is important to note that block transactions are not involved in the price determination mechanism.
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