Tanzania shilling woes hit stock investors

The shilling down spiral trend is affecting stock market investors, especially foreigners whose returns are converted into hard currencies.

On one side when buying stocks they become relatively cheap when shilling depreciates, but on another hand returns diminishes when exchanged to foreign currencies.

In the first quarter of this year, the shilling has already depreciated by almost 4.0 per cent to 1,788/06 a US dollar and the reverse mechanism are not in sight.

DSE Chief Executive Officer, Moremi Marwa (pictured), said the fluctuation of the shilling against US dollar, the major trading currency, have an effect to stock market investors. “…especially foreign investors whose returns have to be converted into hard currencies,” Mr Marwa told the ‘Daily News’.

He added: “this is a common phenomenon for investors in any asset class in currencies other than the home currency - obviously this brings into the fore the issue of foreign currency risk.” Currency fluctuation is one of the key risk considerations for any investor, when investing in a foreign land.

To avert the risks, the bourse CEO said “(the) stability of the local currency is preferred than otherwise”. The shilling has depreciated by about 4.0 per cent in the first quarter of this year, driven mostly by the strengthening of the US dollar against major currencies.

The analysis of shilling trend in three months since January complied by Daily News shows that in January it started at 1,714/67 but dropped to 1,788.06.

The Bank of Tanzania’s (BoT) Monthly Economic Review of February attributed the fall to the strengthening of dollars, after the improvement of US economic activities.

“Shilling further depreciated driven mostly by the strengthening of the US dollar against other major global currencies, following improved economic activities in the US,” the report says.

To cool the market, in January, BoT sold 64.8 million US dollars on net terms, which was 38.6 per cent of the total sales in the market; the rest was from commercial banks.

Last Tuesday, CRDB Bank said shilling rose by 5/- against the greenback during yesterday’s trading session, closing at the levels of 1835/1845, thanks to end month’s obligations.
Source: Daily News,reported by Abduel Elinaza, from Dar es Salaam, Tanzania
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