Gold Stock Prices Rise by 55% as Banks Suffer Double-Digit Share Price Losses.
By Jaston Binala.
The last six weeks, starting from the first week of June, 2016 to the first week of July, 2016 can be safely described as a bad patch on the road for business at the Dar es Salaam Stock Exchange (DSE). The period was characterized by a mild panic at the equities market.
Share prices of the gold miner Acacia Mining rose by 55% from Tsh.10,520 per share at the beginning of June to Tsh. 16,310 this first week of July, 2016 while other major stocks dropped across the board–with the hardest hit shares being those of Tanzania’s two main banks, CRDB bank and NMB bank.
Professional market analysts were not immediately available for comment, but there appears to be an underlying factor driving investment sentiment toward the safety in gold stocks at the DSE.
NMB Bank share prices dropped by 13.6% from Tsh. 1,910 per share in early June down to Tsh. 1,650 per share this first week of July 2016. CRDB Bank shares dropped by 20.3% from Tsh. 370 to Tsh. 295 per share during the period. Share prices for the Nairobi Stock Exchange cross-listed company, Nation Media Group, dropped by 10.5% during the period while Kenya Commercial Bank shares dropped by 8.75%.
Even the lucrative brewers have been hit. Share prices for Tanzania Breweries Limited stocks have dropped by 0.6% while those of Serengeti/East African Breweries Limited have dropped 1.66%. YETU and SWALA Energy shares were stagnant. Shares of the cross-listed Kenya Airways were also somewhat stagnant until June 30, 2016 but the airline’s share prices got a little shot in the arm this past week by a sudden 11% rise from Tsh. 90 to Tsh. 100 per share.
The mild panic in June continues a trend which started in September 2015 at the height of election campaigns, when the equities market began to show signs of deterioration–a phenomenon which experts have differed on causes.
While officials at the Bank of Tanzania have attributed the slump in company shares at the DSE to people discovering better returns in longer maturity Government bonds as a result of increased interest rates, other stake-holders have argued the equities market has deteriorated on account of scarcity of money among small-time investors as a consequence of the anti-graft campaign the new government now in power has been implementing, such that the people who had money to invest in past now do not have money.
Financial market records at the DSE for the earlier part of 2016 do indeed show attractive discount rates for longer term government bonds at between 81.5753% for 5 years bonds and 73.5702% for 10 years bonds. The coupon rate on the longer term bonds was 9.18% for 5 year bonds and a 13.5% for 10 year bonds.
But a licensed securities dealer at Core Securities Limited in Dar es Salaam, Nkunde Shoo, attributes the equities market slump to the Government anti-corruption campaign which she argues has removed money from the people who invested in the stocks. Ms. Shoo said sources of income for small-time equities market subscribers have dried up in the anti-corruption campaign, explaining that even at the bond market it was only corporate bodies which were investing.
That is the reason you will find a large volume of funds has been spent on treasury bonds, but in only one or two deals—which means it was one or two corporate bodies that made the investment. People do not have money to invest at the moment, she said.
What was happening in the past was that there were many small-time investors buying company shares at the DSE. Huge sums of money would be traded here, but those were cumulative amounts from a myriad of small-time investors whose sources of income have been disturbed by the anti-corruption purge.
Officials at the Bank of Tanzania have a different story, however, explaining that the slump was an effect of the central bank’s effort to educate the public on the value of Treasury Bills and Bonds which are marketed as better investment choices amid government effort to raise funds for this year’s Government budget.
An official at the Bank of Tanzania said BoT has been conducting a mass education campaign in workshops, on radio and television to educate people away from company shares in favour of the risk-free government bonds. The bank is telling people through the education campaign government bonds are not only risk-free, but they are also more profitable than company shares.
The bonds offer more attractive interest rates than company shares, the official said, and the people have understood this. On Friday, 10 June, 2016, The Dar es Salaam Stock Exchange issued a market report which announced that on the Government bond market board, a five years bond with 9.18% coupon rate and a face value of Tsh.1.2 million was traded at a price of 80.5383% in 1 deal.
The DSE recorded a total turnover of Tsh. 4.2 billion from 711,140 shares traded in 69 deals compared to the previous session which recorded a turnover of Tsh. 3.6 billion from 1,047,636 shares traded in 60 deals. On pre-arranged board, the TBL counter had 200,000 shares traded at Tsh. 14,000 per share in 1 deal, the DSE report said.
On Friday, 24 June, 2016, the DSE recorded a total turnover of Tsh 10.67 milion from 8,880 shares traded in 53 deals compared to the previous session which recorded a turnover of Tsh 4,1 billion from 384,847 shares traded in 69 deals.
On the Government Bond Market Board, a fifteen years bond with 13.5% coupon rate and a face value of Tsh. 1.3 bilion was traded at a price of 77.2448% in 1 deal. A five years bond with 9.18% coupon rate and a total face value of Tsh. 2 bilon was traded at a price of 77.4301% in 2 deals while a two years bond with 7.82% coupon rate and a face value of Tsh. 2 bilion was traded at a price of 88.4158% in 2 deals.