[2008-07-24]  Strong shilling affects USE in second quarter
A strong shilling against the US dollar, rising inflation and the low demand for treasury bills affected trading on the Uganda Securities Exchange causing a decline in the number of shares traded and a turnover realised during the second quarter of 2008.

A USE bulletin released on July 22 that captures every activity from April, May to June, shows that equity trading results registered a decline in performance with the total turnover falling to Shs13.6 billion from Shs36.4 billion. This represents a decline in the total of about Shs22.8 billion in the second quarters.

The volume of shares dropped to 39 million shares from 67 million shares recorded in the first quarter of 2008, representing a drop of in the number shares traded during the period to 28 million, while the number of deals recorded during the period went down to 3,901 from 3,979, showing a decline of 78 in the volume of deals during the period.

Worldwide financial markets remain under stress and fragile following the sub prime crisis that hit the US leading to financial turmoil.

Emerging economies like Uganda have provided fertile grounds for foreign investor to redirect their investment however, USE official says that despite an increase in foreign cash inflows as investors flee from the affected regions the price surge on oil and commodity prices has led to strains on the local financial market and general instabilities in the global economy.

“Increasing inflation, upward interest rates and a strong shilling against the dollar characterised the period under review. Despite an increase in foreign inflows as investors fled from the tumbling the dollar to other jurisdictions; there was need for concern as the price of oil surged on causing local inflation to rise to three year highs,” reads USE bulletin.

A recap in Uganda’s inflation shows that annual Headline inflation rate in April was 9.3 per cent, 11.2 per cent in May and hit a record high of 12.4 per cent in June.

The Uganda shilling appreciated against the greenback by 2.3 in May 2008, giving rise to low level of shilling liquidity.

According to the USE bulletin, analysts attribute the rise to increased T/Bill issuance, especially between May and June, without a corresponding shift in demand; which in turn created a buyers’ market. Low demand has been attributed to generally low levels of shilling liquidity.

April recorded the highest levels in activity with a turnover of Shs5.9 billion, accounting for 44 per cent of the quarter’s turnover.

Stanbic Bank (U) Ltd maintained its number one position in trading activity, trading 66.19 per cent of the total turnover, and 94.99 per cent of the volume. UCL was next with 10.82 per cent of the turnover and 0.51 per cent of the total volume. NVL and BOBU accounted for 12.02 per cent and 4.57 per cent of the turnover while volume stood at 1.71 per cent and 0.45 per cent respectively.

DFCU posted 4.08 per cent of the total turnover and 1.76 per cent of the total volume, while BATU closed with a posting of 2.31 per cent of the total turnover and 0.58 per cent of the volume.

The All Share Index registered a slight decline at the start of the quarter but later rose to 1,037.92 at the end of April. Levels fluctuated at between 1,061.01 and 1,090.28 for the rest of May and further on to record a high of 1,162.49 in June before dropping to 1,096.41 at the end of the quarter.

Government bonds generally did better than corporate bonds that saw no activities taking place during the period.
Source: © 2008 Monitor Publications Ltd