EQUITIES continue to rally the market as the Tanzania Share Index (TSI) gains 4.45 per cent from the start of the year to date, largely attributed to the increase in prices of CRDB, DSE, TPCC, TCCL and NICO.
Market turnover indicates how much trading activity took place on a given business day in the market as a whole, the Dar es Salaam Stock exchange equity trading activities has stemmed 74bn/-transacted between investors from the start of the year to 19th August 2021.
Higher turnover in a stock indicates better liquidity which means that it is easier to sell the stock in the market. Stocks that recorded turnover higher than 1.0bn/- in the period include: CRDB 12.35bn/-, DSE 1.67bn/-, NMB 18.21bn/-, TBL 19.38bn/-, TPCC 12.57bn/- and Voda 4.7bn/-.
All sectors posted gains during the year as the stock market performance was quite broad-based. Industry and allied was the best-performing sector, trading over 35.29bn/- spurred by stable yields. Banking came in second, trading over 30.56bn/- spurred by good 2020 end of year financial results. Investors continued the broad trend of rotation towards value stocks and large-cap stocks during the period.
Why is stock market liquidity important?
Liquidity describes the extent to which an asset can be bought and sold quickly and at stable prices. In simple terms it is a measure of how many buyers and sellers are present, and whether transactions can take place easily. If there are only a few market participants, trading infrequently, it is said to be an illiquid market or to have low liquidity.
Usually, liquidity is calculated by taking the volume of trades. As indicated above total turnover for the Dar es Salaam Stock market for locally listed stocks was 74bn/-.
The Dar es Salaam stock exchange has shown high levels of liquidity arising due to significant levels of trading activity owing to high supply and demand for stocks, as it is easier to find a buyer or seller. Most stocks that have traded during the period include ones that have announced dividends as investors are looking to cash in on equity returns as the fixed income market continues to suffer from low yields.
Key drivers for the stock market growth are:
(1) Stronger earnings expectation – We expect stronger earnings expectation in the Industry & Allied (IA) Banks, Finance & Investment sectors to stimulate demand for stocks.
(2) Increased foreign investor participation – we expect the recovery and stable outlook of the Tanzanian currency supported by improving economic conditions to boost investor confidence in the stock market and create more demand for stocks.
From a valuation perspective, Industry & Allied (IA) Banks, Finance & Investment the banking sectors are highly attractive with some key listed companies in the sectors trading at attractive metrics.
Enduring good performance of the stock market, our outlook appears to lean favorably as we expect the stock market indices to replicate positive growth trends as we head into September. High demand for CRDB, DSE, TCCL and TPCC will likely push their respective prices up in September.
Positive economic momentum
Expansive monetary policy by the central bank will accelerate economic growth and improve market liquidity; a low lending interest environment will lower borrowing cost making equities the most attractive option in risk assets. We expect the remainder of 2021 to be characterized by sector and stock selection as the market transitions to an economic expansion and stronger focus on valuations. Furthermore, equities in the stock market continue to make new highs as The Tanzania Share Index (TSI) is up by 4.45 per cent YTD with individual stocks such as CRDB up by 33.3 per cent and TPCC up by 56 per cent YTD and we continue to see improving economic environment. Expansive monetary policy by the central bank will accelerate economic growth and improve market liquidity.
Low Treasury bond yields
The yield curve, typically represented by the 20-year and the 2-year Treasury yield will continue to fall. A steep yield curve in the primary Treasury bond market often precedes a period of economic expansion. We will continue to see a low yield environment as the central bank continues to implement expansive monetary policy. We expect the central bank to remain cautious and diligent about maintaining expansionary policy.
The analysis is compiled by Zan Securities, a capital markets and securities authority licensed dealer and a member of the Dar es Salaam Stock Exchange (DSE). It is currently one of the leading stock market dealers in terms of modern ICT infrastructure and branch network from Zanzibar and Tanzania Mainland.