Investors lose 24b in Kampala in one day

It is scary but true. Yesterday, an astonishing Shs114 billion was wiped off the local stock market as investors continued to sell amid fears of a meltdown.

Of the massive loss, Shs23.6 billion evaporated from six locally listed companies including Uganda Clays, New Vision, British American Tobacco, and Bank of Baroda as their share prices continued to lose steam.

Stock brokers affirmed yesterday that the Uganda Securities Exchange has succumbed to panic selling that has had all Western and Asian stocks in a tailspin for nearly a month. USE’s CEO Mr Simon Rutega acknowledged in an interview yesterday that the mood among local investors was becoming intensely gloomy.

He said this is largely because of what the investors watch on international TV channels like CNN and BBC rather than any signs of serious instability in the domestic economy. It is CNN driving the market rather than the fundamentals of the economy,” he said.
Mr Rumbidzayi Nyabadza, the general manager of Renaissance Capital, however, said the downward spiral of the local market is simply coincidental to the current global financial turmoil.

“It is largely a coincidence with the global financial crisis, nothing near a market that’s catching fire,” he said, adding that the market is overheated and is simply cooling off. “The prices had gone too high and the fundamentals could not support that. They have to come down for value investors to buy,” he said.

The tailspin comes hot on the heels of assurances by Bank of Uganda Governor Emmanuel Tumusiime Mutebile and Finance Minister Ezra Suruma last Thursday that the economy would see off the turmoil with minimum effect.

That seeming health of the larger economy though has apparently not translated into investor confidence at the market. Instead, after seeing the chaotic and panicky selling at the world’s major markets, many investors are rushing to dump their stocks. “It is a worldwide reality now. Every investor is running to exit the market and save his cash,” Mr Rutega said. Among the biggest losers was Uganda Clays Ltd that shed off nearly 22.22 per cent, closing at Shs105 from Shs135 on Monday.

Only Stanbic Bank managed to show some resilience bouncing almost 3.5 per cent higher in trade, to close at Shs150. All the other active counters lost in trade, albeit with insignificant volumes.
The benchmark index ALSI closed lower at 712.35. The market is mainly bogged down by sellers who cannot find attractive prices in the market. The nine listed equities at the USE sharply declined last Thursday, and Monday in two straight trading days, the first time such an across-the-board loss occurred back-to-back in several years.

For individual Ugandan investors, the sudden and enormous losses at the USE will represent a setback, particularly for those that had started to reluctantly embrace stocks as sound savings and investment vehicles.

Ugandans have long been indifferent to the culture of investing in stock markets, but encouraged by the spectacularly successful privatisation of Stanbic through its initial public offerings – IPOs - they had lately started to change attitude. The ailment at USE is also the second bold signal that the West’s financial contagion will rattle Uganda’s economy far more swiftly and deeply that previously thought.

Mr Grace Semakula, a trading analyst at African Alliance – a brokerage and dealer firm in Kampala - predicted that the market will continue to lose ground in the short term as investors allocate resources to other areas of the economy, which is usually a characteristic of last quarters of the year. “I don’t think the slump will go on for long. It might instead stimulate buying in the short time. My expectation is that our market will stabilise before the US’ because our stocks will become so cheap,” he told Daily Monitor yesterday.

Mr Rumbidzayi Nyabadza agrees: “Interest from buyers will certainly kick in once the stocks are considered cheap i.e. once they have come off enough to trigger buy interest”. In East Africa, foreign investors who have already been hit by the financial crisis are said to be exiting developing markets like the USE and Nairobi Stock Exchange because they are perceived to be riskier and less resilient than developed markets.

Last week, as more foreign investors exited the market, the Uganda Shilling instantly collapsed against the Dollar in a period of three days, trading at Shs2,200 to the Dollar at its lowest point. The drastic surge of the Dollar quickly spiked prices of fuel with a litre of petrol rising by nearly Shs300.

Most petroleum dealers now sell petrol at an average of Shs2,700 per litre while the same quantity of diesel sells at Shs2,490. With Uganda heavily dependant on imports, prices of most other goods are expected to start rising soon. Mr Mutebile attributed the scarcity of dollars to a plunge in remittances from Ugandans working abroad who have been sacked or had their work hours curtailed.