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Finance Market Seeks More Sources as Listed Companies Lose Prices

The fall in the shares of the companies could be attributed to a fall in demand as foreign investors withheld their money, while others sold off their share to either keep cash or reinvest in their home countries and other markets considered safer.

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The market value of the companies listed on the Uganda Securities Exchange also known as the Total Market Capitalisation fell by more than 15% in the financial year ended June 2020, as economies in the region experienced shocks.  

The fall in the shares of the companies could be attributed to a fall in demand as foreign investors withheld their money while others sold off their share to either keep cash or reinvest in their home countries and other markets considered safer.  

The USE saw the value of the companies on with stocks on its counters, go from 22.66 trillion shillings to 19 trillion shillings. The most affected companies were those cross-listed from the Nairobi Stock Exchange, which all saw their share prices fall at varying rates.   The cross-listed stocks are Centrum, East African Breweries Ltd, Equity Bank, Jubilee Holdings, KCB, Kenya Airways and Nation Media and Uchumi. It was largely the same for the locally listed companies which, apart from the unchanged BAT shares, all saw an overall decline in prices.  

The value of the domestically listed companies, or the domestic market capitalization, is Shillings 4.27 trillion, having dropped 13% from Shillings 4.9 trillion.  Uganda Clays share price fell by 40% followed by Cipla at 37.5%, while NIC prices fell by 30.8% followed by Umeme 18.3%, Stanbic 17.2%, Bank of Baroda 14.4% New Vision 4.6% and DFCU 3.7%.   

This adds to the fact that for the last listing of shares on the market was in 2018 by Cipla Quality Chemicals Ltd.  This has affected the drive by the Capital Markets Authority and other sector players to grow the stock market as the main source of long-term cheap capital to drive investments.   

According to the Capital Markets Authority, apart from the foreign investors being influenced by the COVID-19 pandemic to sell off, the market was already being affected by the strengthening of the US dollar, which attracted investors back to the US.   

But overall, CMA Chief Executive Keith Kalyegira says the market has been profitable for both long-term buyers of shares and the traders, adding that it is more important as a source of capital and preservation of personal money.     

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The National Social Security Fund is the largest investor on the USE, having about Shillings 165 billion in seven out of the nine local listed companies, but also in a number of other cross-listed companies. The Fund says it has more than Shillings 5 trillion ready for investments but the market dynamics and the laws regulating it limits how much it can invest.

The CMA boss also reveals that there is a growing pool of capital through the Collective Investment Schemes, like retirement benefits schemes and investment clubs among others.   

In 2019/2020, the investment schemes more than doubled to Shillings 388 billion in assets under management by asset managers. These belong to about 8,900 clients, and the CMA attributes this to the increased awareness about the investment schemes among local investors, while the growth was accelerated during the period of the covid-19 pandemic as people locked for less risky investment areas.   

The authority also appeals for better management of the government treasuries, a system where the government through the bank of Uganda gives the public opportunity to invest their money in government assets.   Apart from being almost fully risk-free, they have a high rate of return of up to 16 percent.   

However, Kalyegira calls for stricter regulations of the commercial banks that deal in these treasuries so that the public gets more confidence in the market.   

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The worry is however, that the small and medium scale enterprises are hardly borrowing from even the available sources of capital including commercial banks, and will be hard to convince to go for the stock markets to raise the capital.   

The chairman of the Uganda Institute of Bankers and Financial Services, Louis Kaekende says, the SMEs in Uganda cannot grow when they are still borrowing from friends and relatives.  

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