Why investor appetite for government securities has now increased

Dar es Salaam. Activities at the Dar es Salaam Stock Exchange (DSE) have remained low as investors are shifting focus to government securities which are considered risk-free.

For almost a year now, equities have not strongly appreciated at the bourse, prompting investors to look for alternative avenues that generate better returns.

Between January and October 29 this year, the All Share Index, which tracks price of listed counters, dropped by 2.7 per cent to 1990.01 points, according to market data tracked by Bloomberg.

Only East African Breweries Limited and Vodacom Tanzania stocks appreciated markedly by 11.59 per cent and 8.00 per cent, respectively.

Other shares either remained flat because they did not trade or depreciated from time to time.

On the other hand, government securities – Treasury bills and bonds – offer between four and 17 per cent interest depending on maturity time.

“The issue is that most companies are not paying dividends due to poor performance and, as a result, shareholders are not getting the expected returns,” said Mr Raphael Masumbuko, chief executive officer of brokerage firm Zan Securities.

Brokers says they are almost in a recession period which has shaken their performance.

“For almost a year now, activities have been low and that is because equities are not doing well. Investors are going for government securities and there are many shares on the market with no buyers,” said Mr Semboja Lukwaro, head of stock brokerage at Arch Financial and Investment Advisory.

The sentiment was echoed by another broker who said there is more supply of shares in the market than demand.

“There is little trading of equities and mostly we do small transactions especially on counters that have low prices,” said TEG Consultancy managing director Mizengo Kasilati.

An analysis of market performance during the period between January and September shows that the bourse performed better than last year, but it was powered by a one-off transaction that involved the selling of Vodacom shares.

In the third quarter of 2019, it was the Sh499.8 billion sale of Vodacom shares to South African investors that boosted turnover.

A total of Sh527.4 billion was realised in turnover during the third quarter of 2019, a massive jump from only Sh28.17 billion that was realized during a similar period in 2018.

The annual equity turnover of the DSE has been slowing from Sh420 billion in 2016, 400 billion in 2017 and Sh280 billion in 2018.

This year, it made a U-turn and so far the turnover is estimated at Sh595 billion including the Sh499.8 billion of Vodacom, according to DSE chief executive officer Moremi Marwa.

“Generally speaking, I think this year is better than the previous three years. We cannot isolate the Vodacom transaction because it’s part of the trading activities,” he said.

“We still have a better future because we expect to have more listings either this year or in the first half of 2020. We hope the market will regain.”