Why Kampala Share prices are tumbling! Think About It.

Prices at Uganda’s only Sock Market in Kampala have been on a free fall over the last few weeks (see Table 1); this has among other things led to stomach ulcers as one of trader’s (investor) complained.
With some Brokerage firms giving inept reasons like School Fees even before schools break off, www.eatrader.blogspot.com decided to dig deep and came up with the three core reasons as to why Share prices in Uganda are plunging and assigned each, on a total scale of 10, points for their likely impact on price movement.
Below are the core reasons for the downward price movement.




(i) Fear
Also known as panic, spawning from the current Global Financial Crisis which apparently is presented by some sections of the Ugandan media and ‘experts’: as though what the people who sent a rocket to the moon may not be in a position to solve!
With so much information on Cable Television showing the Developed World Stock Markets sliding each passing day: there is this invisible force that makes us OK with our market coming down (psychology) when we are very aware that the companies listed on our Exchange are LIQUID and do business in the region therefore in part
de-linking them from the major outcomes of this crisis.


Likely effect of the Global Crisis coupled with an optimistic outlook.

Aid
True if aid to Uganda reduced because of this Crisis, our financial system would be affected, BUT is it a given that it shall happen? may be not to Uganda because: well aid is a moral obligation almost like religion, starting 2009 Uganda shall be a temporary member of the all powerful 15 member state United Nations Security Council therefore shall be rubbing shoulders with some of the generous donors and lastly we have been able to cut donor dependence to 30% of the National Budget.

Remittances (service export)
Yes our brothers and sisters in the diaspora shall tighten their purses and only release money for the basic needs of life like: feeding, education and health leaving out investment.
On second thought how many of our brothers and sisters are working on Wall Street? Think about it, I mean most of the job losses are in the financial sector unless we are talking about the snow-ball effect that may not happen if the crisis’s impact is lessened early.
Probably a withdrawal by the Americans from the Iraq war would affect us more with 8,000 Ugandans in Iraq remitting close to $60m a year.

Export earning
We export a lot of raw material: coffee, fish, and frankly its not in the developed world interest to shut down their factories that add value to these materials hence the bailouts (nationalisation) currently going on: Given: demand shall scale down but it won’t go away.
That said our biggest export destinations are within the region: South Sudan, Rwanda!


The Global Financial Crisis has no doubt brought a fall in confidence of the investors on the Ugandan Stock Market and this explains the fall in prices as investors are in a stampede flight to safety by irrationally selling their holdings, even though the Fundamentals of our Economy are strong to quote Mr John McCain rightly for Uganda’s case.
Impact on Market: 3 out of 10

(ii) Politics
According to my desk dictionary, politics is defined as: the matters connected with the government or organization of a country or group of countries. In our case it’s the matters concerning a government organization and that is the National Social Security Fund (NSSF) monopoly.
A quick memory refresher about the NSSF: is by far the biggest single (individual or institutional) investor in the Ugandan Stock Market accounting for more than one-third of the free float shares (shares that are freely transferable on the stock market eg Stanbic Bank has a free float of 20% with the other 80% held by Standard Plc South Africa) on the Ugandan Stock Market.
We all know that NSSF has a terrific Liquidity position-recall the 1 trillion Ug shs- this could actually have led to the current NSSF/Temangalo Land transaction (check mainstream Ugandan media for details) which has paralyzed it as a major participant in the Ugandan Stock Market- I mean with the improving Price Earnings ratios of Companies listed on the market looking attractive coupled with a good supply stream of shares : why would the principal Market Investor not take interest or better still buy up the excess supply?; perhaps their board and management are embroiled in the Temangalo Land fiasco fighting for their own life so the stock market is not priority at the moment.
This has starved the Stock Market of its biggest buyer therefore temporarily crippling Demand.
Note: Some of the Fund Managers in the developed world I have exchanged with assign Politics the highest points in their risk assessment parameters for our Emerging Markets.
Impact on Market: 3.5 out of 10

(iii) Safaricom- the IPO aftermath.
Slightly over 6,000 individual Ugandans partook in the Safaricom IPO with Great Expectations; the whole money commitment was around 60,000,000,000 Uganda shillings of which IPO Loans from Commercial Institutions accounted for 16% of that, not mentioning the family & friend’s credit and the informal credit sector (Loan sharks).
Stanbic Bank’s earlier IPO had unleashed a greedy class of Traders’ (Speculators) who were not going to miss the next money train- I mean some arguments went like: Safaricom is the most profitable Company in East and Central Africa, Safaricom is much much bigger than Stanbic Bank: a typical case of 4 wheels of a car being faster than 2 wheels of a bicycle forgetting the speed of 16 wheels of Roller Skates!, yes factually all this was true, but for the many a first-time Ugandan investors this represented the big deal.
Allow me capture this at a micro level
“A friend of mine called me for coffee, lets call him/her Musoke: we had a talk about Safaricom; Musoke started by telling me how he was going to invest 2,000,000 Uganda shillings and sell when the price tripled to 15 Kshs then pay deposit for the Car Musoke had been eyeing for sometime: With the benefit of hindsight from the last Kenyan IPO (Everready) I had partaken in and was bitten I tried to calm down Musoke’s expectations,
But Musoke would not do the same mistake twice: Gwe Andrew I slept during Stanbic’s IPO, that’s not happening again…..”
From this chat I came up with the Safaricom IPO ‘What If’ Minority Report to guide some of my friends with too high expectations.
To cut the long story short well Musoke was devastated and vowed never to return to this ‘CASINO’ called the Stock Market- I added that he should think of coming as an Investor (long term) and not a 100% Speculator.
On the lighter side if say a friend is arguing with Musoke and they want to win the argument- Just sneak Safaricom talk in the argument, ha ha.
Well the above captures the mood of many a first-time Ugandan share traders’ who if Safaricom had not hurt that bad (and still is) would have shifted their new found market savvy ness to the Uganda Securities Exchange: I hope NIC’s upcoming IPO can heal those wounds as long as it’s done the National Microfinance Bank IPO of Tanzania’s way (give locals preference).

Safaricom has created a lot of suspicion, on the workings of the Stock Market, in the minds of Share Traders’ so either they are selling shares in their Uganda portfolio to avoid a ‘Safaricom’ or they are withholding cash that would be used to buy shares for their Uganda portfolio and most importantly it has handicapped some of the big institutional regional investors who heavily bought out its shares after the IPO.
Therefore owing to Safaricom IPO’s Impact we have Supply exceeding Demand at the Uganda Securities Exchange.
Impact on Market: 2.5 out of 10


Think About It
The basic premise of price movements on the Stock Market or generally in business is the Law of Demand and Supply “The higher the Demand the higher the price, the higher the Supply the lower the price and vice versa”
The above 3 points have tilted the tide in favour of higher supply while at the same time withholding demand.
Any HOPE lies in fact that ordinary shares are the fastest appreciating assets in the world!
With relatively cheap shares and a lot of fear in the Stock Market, may be it’s an excellent time to buy-more like a BUYERS PARADISE and this is much easier said than done.
World renowned investor Warren Buffet, the 2nd wealthiest man in the world, is busy picking up stocks of companies with good promise like General Electric (GE) in the USA; I think it would be wise to follow Warren as regards your home Stock Market with companies like: Stanbic Bank and British American Tobacco Uganda in Kampala and yes Safaricom in Nairobi: Think About that.
All the best to you: Investors and Speculators in these interesting times.

Muhimbise Andrew
+256 702 431064
Star Traders’
Kampala