Uganda: Bourse Rallies Amidst Kenya Crisis

Source from:  New Vision (Kampala) 12 February 2008 02/14/2008

UGANDA's bourse has shrugged off Kenya's political impasse that has caused distortions in the economy and continued to post a share price rally, making it boon time for investors. While other sectors of the economy are bearing the brunt of Kenya's political impasse, a bull run on the Uganda Securities Exchange (USE) in recent weeks seems unabated. Defying traditional slump that usually characterises trading at the beginning of the year, the share price boom at the bourse has been fueled by speculative investors, impending rights issue and offshore interest, market players say. Analysts say that while expectations were that Kenyan investors would shift to the Ugandan capital market, it's yet to become a significant driver of the bullish run. "We are seeing capital flows beyond Kenya especially international funds. We already have substantial investment from the Kenyans who showed confidence in our market especially driven by last year's Stanbic IPO," Harriet Kiwanuka, the bourse's head of research and market development, said. She noted that overwhelming demand in the market from local and foreign investors had sent the share prices sky-high and was optimistic that 2008 would be a good year. Analysts say the announcement last year by Uganda Clays (UCL) and New Vision (NVL) of a rights issue had partly fueled demand for the stocks. "UCL demand has increased due to a rights issue. People want to buy as many shares as possible so demand has pushed up the price." "UCL shareholders are also holding onto their shares, with hope to sell after the offer period," said Vivian Sekadde, a broker with African Alliance. She said institutional investors were also eyeing a dividend payment from most listed stocks, thus holding onto their stock while some individuals were speculative buyers. "There are speculative investors making money, which is risky. However, some astute investors are buying at a low price hoping to sell at high price especially on the British American Tobacco (BATU) counter." Analysts say investors are also taking advantage of inefficiencies in the market. "We also have inefficiencies in the market .Our market is not yet perfect so we don't have market correction. When you announce results, it takes time to factor in valuation of the stock so the existing gaps create opportunities for investors to make money." All the prices of the six locally listed stocks have increased. By Monday's trading, Baroda was trading at sh2,535, DFCU sh700, Stanbic sh235, BATU sh1,200, UCL sh6,390 while New Vision traded at sh1,570. Analysts, however, warn that the price earnings ratios for some counters that posted 30 was too high for an emerging market bourse, noting that it was a matter of time before market correction set in. However, some stocks have been supported by favourable earnings, which have pushed up their valuations. "The market will correct itself," Sekadde said. Enditem