“You can’t judge a book by its cover,” a local saying goes. We have read in various tabloids and newsletters of how Uganda Securities Exchange (USE) has gained big time over the previous period with the All Share Index (ALSI) bosting of highs averaging 2087.47 base points, and lows of just about 1,383.62 base points in SB’s 52-week analysis as of 22nd February 2018. These are indicators of an improvement in performance of Uganda’s capital markets. However, based on analysis by the Summit Business Analytics (SBA), the flourishing statistics are not a true reflection of what is on the ground.
The 12-month market analysis shows that USE bourse has gained over 32.84 percentage points, more than the famous Dow Jones, FTSE 100, S&P 500, Nikkei 225, among the biggest stock markets worldwide. This nevertheless is an inaccurate measure of the markets. The activity on USE cannot match the busy trading counters of the Dow Jones or FTSE 100. Activity at the USE is dominated mainly by Umeme, Stanbic Bank and little activity on Uganda Clays and Bank of Baroda. While other developed bourses have hourly market activity, giving investors a host of investment decisions to make over a day, this isn’t the case at the USE. Thus USE is an inactive stock market.
Before conclusions are drawn, (SBA) takes a look at the trend of activity and some counters had no activity at all throughout the last quarter of 2017. When is a bourse deemed inactive? For a bourse to be inactive, the highest proportion of securities have limited activity. That is, infrequently traded, fairly illiquid, highly volatile (uncertain) and are cabinet securities.
It’s no surprise that there is little exchange of hands of the equity at the bourse. Most of the cross-listed stock on USE spend a couple months without activity on the counter. In December 2016, British American Tobacco share price reached the Ugx30,000 (US$8.1) mark. However, the counter has stagnated without activity at the bourse. On the face book value, the counter is deemed well performing, yet actually no activity is taking place. This is evidence of severe inactivity in this specific counter. And it’s not the only one with infrequent activity. The disease has spread across all the cross listed stocks. Inactive counters for the last two years include Kenyan Airways (KA), and National Media Group (NMG). One would assume perfect demand for the supply on the counters. However, this is irrational marketing analytics.
We analyzed two share counters, BATU and Umeme which did not vary in the 30-day market analysis despite the fact that Umeme counter has one of the highest volume of shares transacted. In fact, Umeme counter alone contributes to over 40% of the daily turnover at the bourse. However, share prices have remained the same, meaning there was perfect aggregate demand and aggregate supply, an irrational assumption that will almost accurately never exist. If there was any activity, then USE uses decree to determine price and keep it at that rate. The two had zero variation from the start of December 2017 to the New Year 2018. Yet, globally, almost every bourse experienced the highest level of activity with stock markets surpassing record highs, and increased activity in their bourses. Moreover, theirs is at most hourly activity.
Many analysts ignore the efficiency of share price checking insisting turnover, market capitalization and trading volume give a bigger picture. But Summit Business Analytics recognize that in the market we are in, price is also as significant a KPI as every other indicator. But an infrequently traded share will almost always remain at the same price especially in markets like USE where market forces are the adjusters.
BATU’s share price alone is illiquid. It is very expensive (imagine just one share costs US$ 8.1(Ugx. 30,000)), but lacks interested buyers. There is not even one middle income Ugandan who would consider buying just one share at a whooping Ugx. 30,000 yet they are struggling to make ends meet. But in spite of this illiquidity, the share price still baffles stock traders. Why has it still remained at the Ugx. 30,000 mark? Doesn’t USE have measures or regulations that could control this share price or do the top managers have stake in this specific counter and are not ready to see it lose value? Three years ago, we thought share price would plunge with the Uganda Tobacco Control Act passed on 28th July 2015 which brought Uganda the strongest tobacco control policies around the world. But it seems it has more pillars than the forces of demand behind it. Buying BATU shares to invest is almost like buying dormant non-appreciating real estate (impossible today), very expensive yet zero share price volatility. We are left to wonder why it is still at Ugx. 30,000 for more than two years. A large block of stock and/or small amount of an infrequently traded stock is likely to be difficult to sell without a reduced price being offered to potential buyers.
Why doesn’t Uganda’s Capital Markets Authority impose laws that penalize these dormant counters that spend more than a year without activity on the counters? Even if your dividend yield is be high, share price will still be affected mainly by market forces of demand and supply. Dividend yield is driven mainly by profitability. Until the Capital Markets Authority steps in, the BATU share price remains the most illiquid counter in the region. The dormancy on such counters accounts for Uganda’s Stock Market has stagnated.
Dormant stocks on the New York Stock Exchange are escheated after five years of inactivity and receive significant penalties whenever they fall short of monthly and annual trading targets. Maybe, CMA should give directives to Uganda’s bourses that will enable them impose penalties on companies whose shares are inactive for more than a month – those that don’t attract demand.
Other counters also have characteristics of inactive securities like only trading in small batches, around 2-5 shares at a time. Their trading volume is significantly low. They may not trade for days, weeks or even months. The high-lows of most of Uganda’s securities change usually after 5-10 days, yet more prominent markets have per second, per minute and at most, hourly price changes. “International markets like the Nasdaq have per minute changes,” says Francis, a business analyst at Summit Business Publications. “Stocks like Google, IBM and GE change almost every second. This keeps investors at their fingertips and can generally open up new careers for market analysts as most financiers do not have time to monitor these stock portfolios but still want to earn from them.”
“The Capital Markets Authority could use the same enterprise by encouraging bourse activities through penalizing inactivity and rewarding activity. This will induce multiplier effects in form of job creation for business analysts and brokers, and consequent macroeconomic benefits to Uganda.”
Ever heard of USE’s trading floor?
A trading floor is a physical place where stock trading occurs on an exchange with an open outcry system. Meanwhile, an open outcry system involves shouting and use of hand signals to transfer information primarily about buy and sell orders. Stock Exchange bourses always have trading floors. USE too has one but how many people know about it?
SB analytics carried out a survey on 100 office management people across Ntinda, a prominent suburb. Only about 30% of these were aware of USE and just about two of them know about USE’s trading floor.
Where is the awareness?
The only time Ugandans get to hear about USE is during NTV tonight. Even then, it’s not articulate enough to get the attention of a common man, who could spot USE as a savings and investment platform especially those planning for retirement in a decade years. A
glimpse of the trading floor everyday would boost the activity on the bourse. But even though most exchanges are conducting trades electronically, skipping this stage will most definitely continue to affect our stock markets. We move step by step not striding. Shortcuts are wrong cuts.
Also, in the Daily Monitor for instance, the stocks take a small portion of the sheet. Many have skipped this page without noticing the counters. Can’t we learn from Kenya? Kenya’s Capital Markets report trading on a full page in the Business Daily. This attracts more readers than just a column. This is why they are at least moving ahead of Uganda.
Hourly not daily
NTV tonight updates are not enough. We should be looking at hourly updates of the stock market to show Ugandans that there are hourly gains. Some think purchase of shares is monumental yet you could buy shares in a split second. USE should learn a lesson or two from the betting companies in the country.
Betway set up shop in Uganda in 2016, but still attracts more traffic at its outlets than the USE does on its trading floor. What could be the strategy Betway is using? One word, aggressive advertisement!
You can’t finish more than an hour without listening to or watching a betting company advert on radio and/ or television respectively. They will almost always inform you of the new products, the chances available and will update their websites every minute. Why doesn’t USE deploy the same strategy? Hourly updates on the stock markets on both radios and TVs will leave locals pondering about what exactly happens at the stock market. This will pool numbers to the bourse consequently boosting trading on the already inactive post. The USE website alone gives daily updates to investors after two to three days. We even trust international websites more than USE in updating our stock market daily.
More so, how often do you hear news of a new product or service offered by a company on the bourse by any of the news outlets?
If you watch Quest Means Business, they advertise new products, issues and related bulletins every day and how they will affect stocks on the US stock market. However, for USE, it takes about a minute or two for their report to be released in media houses once a day. There is no attention to detail. It might even skip your attention. On NTV Uganda for instance, it takes them less than five minutes talking about the bourse.
Such news would boost stock trading as Ugandans would have more confidence in investing in companies with the different products exhibited. For instance, suppose Airtel Uganda was listed and news of how it had introduced a new cost friendly bundle were released, this would encourage consumers to buy its stock speculating higher sales consequently becoming gains, thereby raising its share price. Constant news releases on stock bourse companies could boost competition for stocks and increase their demand thereby fluctuating share prices, showing market activity.
A handful of top companies listed
Uganda has more than a million companies registered at the Uganda Registration Services Bureau (URSB) but only 76 of these, are recognized as top companies worldwide. Now that is still a fair number compared to the regional bourses. However, only 16 of those are listed on USE. Where are the rest?
The oldest bourse, the Nairobi Securities Exchange bourse, founded in 1954, boasts of over 64 listings in different sectors. Meaning they have registered at least one company every year. This is a massive number compared to the next bourse, Dares Salaam Stock Exchange that only has 26 listings. However, DSE has grown as fast as NSE with a company every year since it was opened in 1996. USE on the other hand only has 16 companies on its listing with less than a company listing every year yet it was listed a year after the DSE. Same goes for Rwanda’s which was just recently incepted in 2005 with only seven companies. The growth rate and number of listings is still worrying.
Yet Uganda has over 76 top companies with capability of being listed, only 16 of
these are giving the public a chance to venture in their stake.
This raises eyebrows among Ugandans as they wonder where the Capital Markets Authority is to intervene and maybe use policy to favor Ugandans. Can’t CMA impose a policy that forces top companies to list on the bourse giving a chance to the general public to own part of the stake of the companies in their economy? At least about 40 percent should be included in the IPOs of all these companies to encourage inclusivity and drive away selfish businesses.
This directive should not only target USE but also the Capital Markets Authority. For our stock market to rival that of Kenya’s and maybe any of the top exchanges in the continent, this could be the foundation. Policy is power.
If a Ugandan scientist was to learn from another Ugandan scientist in developing technology, there would be less improvement relative to the world’s technological advancement. This is the same thing that would happen if he tried to copy a Kenyan, Nigerian or South African scientist. Of course, there would be some change but it would be insignificant. Information that goes through many sources before it reaches you is 99.9 percent times compromised. Same goes for bourses.
When we interview Uganda’s business analysts, they almost always benchmark with the regional bourses; DSE, NSE and RES. These are fair benchmarks but you can only achieve as much as they have gone. These are inactive posts. Given that USE is already part of this faction, looking elsewhere could do the bourse more good than harm.
Rather USE’s market analysis should be diverted to markets overseas. The likes of the Dow Jones, Nasdaq, S&P 500, Nikkei 225, to mention but a few, should be our fundamental benchmarks. These are highly active markets that change almost every second. Investors in these markets have to employ highly specialized professionals to monitor and predict trends while USE’s can be predicted by any Tom Dick and Harry. As long as USE sticks to the same benchmarks, the trajectory will continue growing without necesarrily reflecting the “real” activity in the bourse. This opens up new careers for labour like business analysts and data scientists especially in a country where the unemployment rates are alarming (more than 20 percent of the labour force is unemployed, and about three quarters of the employed 80 percent is unsatisfied).
SB Analytics observed per minute movement of each the bourses. While the Dow kept fluctuating per minute, it would take the NSE more than an hour to make significant change. Market activity is clearly low on the side of NSE and extremely high on the side of the Dow. If we are benchmarking on poorly performing exchanges, USE will always lag behind. This should immediately be checked; otherwise Uganda’s stock market will forever lag behind grand exchanges.
Career blind spot
How many youths know about the stock markets of Uganda? Most of them only hear about these things from watching movies and less commonly, international news stations like CNN and Al Jazeera, that they might have landed on while their parents were watching.
Even as far as higher school, very few
youths know about USE. A survey in the SB Analytics report shows 10 students in every 100,000 know about USE. These are shambolic figures. But what has USE done to improve the numbers? Even the business analysts at Summit Business are in the dark.
A journey to a few of the biggest institutions of Uganda unmasked these worrying conditions. There are no recognized courses on business analytics in big institutions like Makerere University. Most of the courses that might be slightly directed to this field are also not clearly addressed.
A well-recognized course outline on business analytics will boost the stock market through clear sensitization, and information that guides Ugandans towards investing in equity.Also USE should carry out a number of trainings and endorse similar facilities that drive information sharing of the stock markets.
To make matters worse, USE lacks highly skilled analysts. Most of these receive on field training without a background in the stock market. It’s like forcing a horse to drink by pushing its head into the water. Their efficiency does not convince most investors that they are the right people to trust when developing an investment portfolio. This situation continues to mushroom with lack of clear career endorsement from institutes of higher learning. A bottom up approach is the best way to increase awareness of Uganda’s stock markets. Take Centenary bank, they have continuously deployed their services in institutions, sensitized youths is schools about benefits of saving in a bank, to mention but a few.
USE or any of Uganda’s upcoming bourses should also deploy the same tactics. Seminars and workshops at different levels in different schools will promote sensitization among the youths. It will also push institutions to offer course in business analytics as the demand for them will show promise.
It’s time to act!