Investors shift to equities as bond yields soar

DAR ES SALAAM: Dar es Salaam Stock Exchange (DSE) investors are increasingly turning their attention towards equities, driven by a confluence   of rising bond yields and promising fundamentals in the stock market.

The transition from bonds to stocks has gained momentum, in recently weeks, painting an optimistic picture for equities in the near term.

The Zan Securities, Chief Executive Officer, Mr Raphael Masumbuko, said yesterday that the outlook for equities appears positive, especially as investors are likely to shift their focus from bonds to stocks with strong fundamentals.

“This reallocation is expected to be driven by rising bond yields, which make equities more attractive in comparison,” Mr Masumbuko said through Zan’s Weekly Market Wrap up.

Recent data underscores this shift. The banking sector has seen notable gains, and the TSI index has recorded a robust year-to-date return of 7.91 per cent, signaling a strong domestic equity market.

“As liquidity tightens in the money markets and yields rise,” Mr Masumbuko said, “equities may benefit from increased inflows, particularly in sectors showing robust performance”.

This upward trajectory is attributed to several factors, including tightening liquidity in money markets and rising bond yields, which are making equities more attractive.

“Overall, the equity market is expected to remain buoyant, with potential for further gains in the coming weeks,” he said.

In the debt market, tight liquidity in the money markets is expected to push yields higher. A shift towards equities with strong fundamentals will likely decrease demand for fixed-income securities.

He said this reduced demand could lead to further pressure on bond prices, potentially driving yields even higher.

In the coming weeks, Zan anticipate the one-year Treasury bill yield to exceed 11 per cent, while long-term rates are expected to stabilise around the 16 per cent mark.

Overall, the market outlook reflects a period of transition and opportunity. As investors navigate through rising bond yields and tightening liquidity, the equity market stands to benefit from increased investor confidence and capital flows.

The coming weeks could prove to be a pivotal time for equities, with strong fundamentals and favorable conditions potentially driving substantial gains, stock analysts said.

Vertex International, Research and Analytics Manager Beatus Mlingi said the secondary market, trading was dominated by longer-term bonds, reflecting a strategic move by investors to prioritize security

and higher returns over liquidity in a potentially volatile economic environment.

“These market dynamics suggest that investors are positioning themselves to maximize returns, even at the expense of shorter-term liquidity, signaling confidence in long-term investments as a protective

strategy against future uncertainties,” Mr Mlingi said through the firm’s Weekly Investment Talk.

Orbit Securities Portfolio Manager and Head of Research and Investments Ammi Mwamunyi said in the first half of this year the closed-end funds sector has taken centre stage while showcasing exceptional performances.

“At the forefront of this impressive display are NICOL and Afriprise, two funds that have not only outpaced the market but have also set new benchmarks for growth,” Mr Mwamunyi said.

NICOL has seen its share price double, marking a staggering 100 per cent increase year-to-date, while Afriprise has enjoyed a robust 53 per cent climb.

“Over the past year,” Mr Mwamunyi said, “these closed-end funds have consistently outshone their peers on the DSE, establishing themselves as top contenders in the market”.

NICOL’s current share price of 800/- is significantly lower than its Net Asset Value

(NAV) per share of 2,612/-. This means the stock is trading at a big discount, with a

price-to-book (P/B) ratio of just 0.30x.

“In simple terms, investors are able to buy NICOL shares for much less than the actual value of its assets,” Mr Mwamunyi said.