[2008-03-26]  Low Liquidity Dogs Use
THE Uganda Securities Exchange (USE) is being weighed down by lack of liquidity amid the recent bullish performance of stocks at the 10-year old bourse.

Demand at most of the counters of the six-locally listed stocks has pushed prices to unprecedented highs in recent months amid low supply. The USE all share index hit a high of 1050 in January while it closed at 990.27 on Tuesday.


Analysts say the demand has outmatched supply at most counters such that small trading volumes have resulted into unrealistically high choppy price movements.

The rise in stock prices has resulted into an increase in price earning ratios (P/Es) to above 20 at four out of six counters.

Market regulators suggest that a combination of more listings, share right issues and automation of the bourse would boost liquidity.

"From the Kenyan and Tanzanian experience, the launch of the Central Depository System (CDS) boosted liquidity because settlement is shorter, which increases the number of transactions," Japheth Katto, the chief executive officer of the Capital Markets Authority (CMA), said.

With the CDS, investors open accounts where all their shares are deposited and transactions reflected through debit and credit with statements issued regularly.

Katto said that while CDS infrastructure had been set up at the bourse, they were waiting for the CDS law for it to function.

"Cabinet has given approval to the CDS Bill. It's awaiting parliamentary approval. Once we have the CDS, the next step would be an automated trading system like in Nairobi and Dar-es-Salaam stock exchanges."

He said the automation at USE would also make the merging of the trading platforms of the East African bourses a reality. This will be achieved after the three stock exchanges are demutualised and incorporated as companies limited by shares.

The merger will create the East African Stock Exchange Ltd with operational centres in Dar-es-Salaam, Kampala, Kigali and Nairobi.

Analysts say that in addition to getting more companies to list under the privatisation programme, the private sector needs to come on board and list on the stock exchange.

"One of the ways through which liquidity can be improved is through rights issues. There also needs to be a bigger push towards more companies to list and this requires government support and managers of big firms realise that listing has its benefits in the long run. The market needs to be a lot more liquid," Njoroge Nganga,the managing director of Dyer and Blair, a brokerage firm, said.

Uganda Clays commenced its share rights issue on March 10 in which 4 million shares are available.



Source: Copyright © 2008 New Vision.