Tanzania: weakening shilling reduces stock returns

The shilling is expected to be under pressure this week should demand for dollar enter the market again.
The trend of shilling depreciation, which Breton Woods institutions say walks to its equilibrium from high value last year, is hurting trading in equity market. The National Microfinance Bank (NMB) said yesterday the shilling traded stable against the greenback on subdued dollar demand from importers.

“The shilling is however expected to be under pressure next week if demand for dollar will enter the market again,” NMB said in e-Market report.

However, in other development another bank, CRDB, said shilling lost its value slightly due to high dollar demands from the energy and manufacturing sectors.

The shilling, according to CRDB, closes at the levels of 2,145/2,175 to the greenback; which is almost fifth of its value since January. The IMF said recently that the “shilling, which was assessed to be somewhat overvalued in 2014, is now closer to its equilibrium level.”

However, depreciation has hit hard the trading at Dar es Salaam Stock Exchange (DSE) to backtrack the share return gains. DSE Chief Executive Officer Moremi Marwa said the listed companies’ valuations and trading activities were partly affected by the depreciation of shilling against the dollar. “…

This had a negative impact on investors’ returns (as measured in US dollars),” Mr Marwa said in DSE CEO Quarterly Note for third quarter.

He said as a result, foreign investors’ activities on the buy-side remained the same as was in quarter two (Q2) – at 86 per cent, out of total trading activities while sale-side activities declined significantly, from 41 per cent in Q2, 2015 to a mere 8 percent in Q3.

The shilling also might affect the price earnings (PE) ratio as on weighted average market for domestic listed firms was 16.93 times as of end of September 2015 compared to the trailing PE ratio of 17.31 times during last quarter.

On other side, the weighted average price/book value remained the same at 4.6 times. Similarly, the trailing weighted average dividend yield remained at 3.1 percent as was in the previous quarter.

The leading cigarette producer TCC reporter a 4.0 per cent profit drop in this year’s first half as the results of shilling woes to 33.77bn/-.

The IMF said a combination of measures— tightening of monetary policy and seasonally higher export earnings—subsequently helped to stabilize the shilling and have allowed a return to normal in the interbank and foreign exchange markets since August 2015.
Source: Dadailynews.co.tzily News, reported from Dar es Salaam, Tanzania
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