Market executives anticipate good performance as COVID-19 threat is minimized
Kampala, Uganda | JULIUS BUSINGE | Trading in the second quarter of 2020 at the Uganda Securities Exchange registered a tremendous decline as Uganda’s equity markets continued to feel the impact of COVID-19 pandemic, according to the quarterly bulletin for the period April – June.
Published by the USE, the bulletin indicate two counties – Umeme and Stanbic to have enjoyed trading dominance as they continued to attract the attention of investors at the Nakawa based bourse.
According to the bulletin, the second quarter of 2020 accounted for a total turnover of Shs3.4billion compared to a combined total of Shs25.6billion that was traded between April – June 2019.
Out of this turnover (trading amount recorded), the UMEME counter took the first position, with a posting of Shs3.1bn, accounting for 91.70% of the total turnover. Stanbic came second after accounting for 4.49%.
The other counters, Bank of Baroda Uganda, CIPLA, Uganda Clays Limited and DFCU posted 2.77%, 0.81%, 0.10% and 0.08% of the quarterly turnover, respectively.
The rest of the counters represented by National Insurance Corporation and New Vision Limited had a combined turnover of Shs1.7million.
The All Share Index opened at 1,305.84 rising steadily to a high of 1,396.52 in May but dropped gradually to close at 1,369.8.
This trend was due to changes in different market prices and the exchange rate. The local share index fell steadily from 342.21 to 340.14 in May 2020 and plunged further to close at 339.17 in June 2020.
Meanwhile, there were six treasury bonds re-opened in the quarter with a value of Shs940bn which were listed. The current total value of the Government Bonds listed on the bourse stands at Shs12.6trillion.
The corporate bonds segment remained inactive throughout the period as investors in this segment continued to hold onto their investments and receive interest that is paid out semi-annually.
There are two corporate bonds currently listed on the USE. One is African Development Bank Bond maturing in February 2022 and the other is Kakira Sugar Limited Bond maturing in December 2023.
Market analysts say that while the ultimate growth outcome is still uncertain, an even worse scenario is possible if it takes longer to bring the health crisis under control. The pandemic, analysts say will result in output contractions across the vast financial markets.
This view is also supported by Bank of Uganda in its June 2020 Monetary Policy Report. The report says that although Uganda is gradually easing the lock down measures instituted to contain the spread of the pandemic, the adverse consequences of the global impact of the pandemic on financial markets could persist through the remaining part of 2020.
The performance of the market will continue to depend on the health of the economy largely influenced by inflation and commercial bank lending rate movements.
According to Bank of Uganda and Uganda Bureau of Statistics data, inflation remained relatively subdued with annual headline and core inflation averaging 3.4% and 3.8% in the second quarter of 2020 compared to 3.3% and 2.9% in the first quarter of 2020, respectively.
Year on year headline inflation rose to 4.1% driven by higher annual core inflation as a result of high transport costs following the relaxation of COVID-19 lock down measures.
Bank lending to households and businesses remains an important channel through which monetary policy affects the economy. Commercial bank lending interest rates continued to decline in line with the accommodative monetary policy stance. Lending rates on shilling denominated loans rose to 18.8% in May 2020 from 17.8% in March 2020. On the other hand, lending rates on foreign currency denominated loans fell to 4.2% in May 2020 from 6.6% in March 2020.
During the period under review, the USE management launched an online account opening platform that will enable Ugandan investors to seamlessly open up Securities Central Depository (SCD) accounts.
This platform is an upgrade to the USE Easy Portal which is an online platform that initially enabled investors to view their security holdings and monitor their stock transaction activities.
The platform offers an easy, fast and convenient experience to local investors despite the impediments on physical interactions as a result of the COVID-19 pandemic.
Operations at the USE were largely manual at its inception in 1997. In 2010, the USE started operating a securities depository, which ushered in a paperless clearing and settlement regime.
To further enhance efficiency, the exchange invested in an Automated Trading System in 2015 which meant that brokers were able to execute trades from various locations over the internet.
These technological advancements, according to USE officials have seen a shift from formerly issued paper certificates to electronically issued securities. Currently, 98% of all shares traded on the Exchange are in electronic form and only 2% are in paper form. The exchange started work on a platform that would enable the tracking of investments online at the end of 2019. These technological developments are expected to support efficient trading in the next quarter and thereafter.