In East Africa, regulators at a crossroads over falling share prices

East African capital markets regulators are scratching their heads in an attempt to find a viable solution to the downward trends that have hit regional stockmarkets, keeping new companies at bay while driving off investors from what was once seen as the most profitable investment venture.

Despite various innovations to entice investors and attract new companies to the market, regional stockmarkets continue to face declining share prices and market capitalisation, low trade volumes and a scarcity of initial public offerings.

A study carried out by the Capital Markets Authority of Kenya whose findings were released last year shows that there is emerging stiff competition from quick return vehicles including real estate, mobile money products and sports gambling.

“The value of our market has remained stagnant for a long time and there are fears among potential issuers that coming to the market at this time they will not realise their full value,” said Job Kihumba, executive director in-charge of corporate finance at Standard Investment Bank.

It is also argued that East Africa runs some of the most expensive stockmarkets in Africa due to high brokerage fees, clearing and settlement fees, and other charges, with the cost of trading shares on the continent being considerably higher than in developed markets.

Persistent declines

Market data shows that all the regional stockmarkets —Kenya, Uganda, Tanzania and Rwanda — recorded persistent declines over the past two years.

In the past one year (July 2018-July 2019) the Dar es Salaam stock Exchange All Share index declined by 17.1 per cent, Nairobi Securities Exchange All Share Index declined by 13.67 per cent, Rwanda Stock Exchange All Share Index fell by 3.68 per cent while Ugandan Securities Exchange All Share index declined by 12.83 per cent.
In Kenya, for example, most listed companies are not performing well, with those in sectors such as banking, insurance, manufacturing, energy, investments and commercial and services issuing profit warnings.

Firms such as Deacons and ARM were suspended from trading due to the poor financial showing while Atlas African Industries Ltd was delisted from the NSE in April this year.

Attempts by the Kenyan market regulator and the NSE to introduce new investment products on the bourse have failed to ignite excitement among investors.
Lukewarm interest Investors have particularly shown lukewarm interest in collective investment schemes asset backed securities, exchange traded funds, global depositary notes and receipts and the recently launched derivatives market.Kenya introduced Exchange traded funds in 2015 […]

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