DSE gains on positive H1 earnings reports from banks
DAR ES SALAAM: During the week ending August 16, 2024, the capital markets experienced several positive developments, including increased turnovers in both equities and fixed income securities, rising equity prices and the launch of a new collective investment scheme.
Major indices saw gains, driven by a rally in CRDB Bank Plc following its substantially surprising profit growth in H1-24. Additionally, the domestic equity absorption capacity was tested as a foreign investor sold a block of 620,000 TCC shares through a prearranged block transaction at 6,000/- per share.
Equity turnover surged by 74 per cent during the week, reaching 6.37bn/-, primarily due to the block transaction on the TCC counter. Turnover on the TCC counter alone amounted to 3.72bn/-, a significant increase from 1.94m/- in the previous week.
The NMB counter also saw a 33 per cent rise in turnover to 646.9m/-, while CRDB’s turnover declined by 45 per cent to 1.67bn/-.
These three counters collectively accounted for 95 per cent of the week’s total turnover, with TCC alone representing 58 per cent.
The Tanzania Share Index (TSI) and All Share Index (DSEI) rose by 1.28 per cent and 0.97 per cent, respectively, largely due to a 9.68 per cent rally in CRDB shares.
Other counters that contributed to the indices’ gains included DCB Commercial Bank (DCB), which saw a 9.09 per cent price increase; Maendeleo Bank Plc (MBP), up 1.67 per cent following the announcement of a scrip dividend of 44/- per share; National Investment Company Ltd (NICOL), up 1.28 per cent and Twiga Cement Plc (TPCC), which gained 0.53 per cent.
Conversely, Tanga Cement Plc (TCCL) was the only counter to experience a price decline, falling by 5.88 per cent to close the week at 1,600/- per share. This decline was attributed to ongoing uncertainty and delays in an offer from Scancem International D.A to TCCL’s retail shareholders, which was anticipated before the end of Q1-24.
Since the delay, TCCL’s price has already declined by 24.5 per cent from the beginning of Q2-24.
The net foreign outflow for the week was 3.74bn/- (1.38 million US dollars), a sharp increase from 786.99m/- (0.29 million US dollars) the previous week, primarily due to the TCC block transaction between a foreign seller and a domestic buyer.
Foreign investors accounted for 63.24 per cent of total equity sales and 4.57 per cent of total equity purchases, with domestic investors covering the balance on both sides.
One of the most notable developments during the week was the launch of the Alpha Halal Fund on 13th August, 2024, with an initial investment period open until October 17, 2024. The Fund adheres to Shari’ah principles, being the strictest set of ethical investment guidelines. This launch marks a significant milestone for Tanzania’s capital markets as the Alpha Halal Fund is the first ethical fund in the country and expands investment opportunities to the region, leveraging the amendments to the Foreign Exchange Act in 2022.
The Fund targets investment opportunities within the East African Community (EAC) and Southern African Development Community (SADC) regions, granting domestic investors access to 18 stock markets with over 550 listed stocks.
Currently, the cost of investing in financial markets outside Tanzania is significant for domestic investors, particularly retail investors, due to custodian requirements in destination markets, which can amount to at least US$100 annually before brokerage commissions and funds transfer charges. This cost structure is particularly burdensome for retail investors.
Additionally, most markets impose regressive brokerage commissions, where smaller transactions incur proportionally higher charges, further increasing costs for retail investors in international markets.
The Fund aims to raise at least 10bn/- during the initial offering period and more after being open-ended collective investment scheme. With this size, the Fund expects to facilitate significant cross-border ticket size transactions, with prearranged custodian charges from a leading domestic operator.
This is anticipated to substantially reduce participation costs for domestic investors in international markets within the specified territory.
While investing in multiple markets introduces additional risks, the ethical nature of the Fund helps mitigate several of these risks through the careful selection of investment destinations and sectors.
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The Fund excludes investments in sectors such as conventional finance (including commercial banks and insurance companies), luxury goods (such as alcohol and tobacco), purely entertainment-focused companies, defence and weapons manufacturers, distributors, gambling and betting companies.
Moreover, the screening process excludes companies with excessive debt, specifically those with a debt-to-equity ratio exceeding 50 per cent.
This approach proved resilient during the 2008 financial crisis, where Islamic banks performed relatively well compared to conventional banks, which required bailouts.
To navigate the complexities of this extensive market, Alpha Capital has partnered with LSEG Data & Analytics (formerly Refinitiv) as a screening agent.
LSEG Data & Analytics, a subsidiary of the London Stock Exchange, will conduct the screening process and provide a shortlist of Shari’ah-compliant assets within the investment universe.
Additionally, Alpha Capital maintains an in-house Chief Shari’ah Officer and a Shari’ah Advisory Board (SAB) that meets quarterly to audit the Fund’s operations and investments. The Centre for Islamic Finance, Consultancy and Advisory (CIFCA) will serve as the Fund’s external Islamic advisor, conducting annual audits to ensure compliance. Both CIFCA and SAB will issue periodic reports to inform the public about the Fund’s operations.
This year has seen the introduction of four new collective investment schemes, with domestic investors absorbing significant foreign outflows over the past two years while maintaining a bull market.
With the development of such investment products and the active participation of domestic investors in the financial markets, Tanzania’s capital market is poised for substantial growth in the coming years, further contributing to the notable expansion of the financial sector, which has been the fastest-growing economic sector over the past two years.
