Understanding the stock market in East Africa

32,272,059,785 of what?

This month’s Indicator of 32,272,059,785 (32.2 billion) is the total market capitalization, the amount of US dollars in all the stock exchanges, in the East African Community at the time of writing.

What do you mean by market capitalization?

Market capitalization is the aggregate valuation of the company based on its current share price and the total number of outstanding stocks.

Basically, it is the total value of the companies listed on an exchange. In our case $32.2 billion USD is the total value of all the companies in all the stock exchanges listed in East Africa.

How does this compare to other stock exchanges around the world?

The New York Stock Exchange (NYSE) is the largest in the world at over $18.2 trillion USD in market capitalization, over 500 times larger than the total value of all the exchanges in East Africa. The NYSE is followed by the NASDAQ at over $6.8 trillion USD and the London Stock Exchange at $6.2 trillion USD. A bit closer to home is the Johannesburg Stock Exchange which has $951 billion in market capitalization, nearly 30 times as large as the EAC exchanges.

So which countries in EAC have the most and the least investment in their stock exchanges?

Kenya is the largest economy in the region so it is no surprise that the NSE of Kenya has the largest market capitalization equivalent to $18.8 billion at the time of writing, followed by Tanzania at $9.8 billion, Rwanda just under $3.7 billion USD and the smallest being Uganda at $71.9 million. At present Burundi does not have a stock exchange set up.

How many investor accounts are on the stock exchanges?

It varies significantly country by country. For example, in Kenya we see approximately 4% of the people participating in the stock exchange whereas in Tanzania there are estimated to be only 200,000 accounts or less than one one hundreth Tanzania’s total population.

Increased financial literacy, wealth, and familiarity with stock investing in other locales typically correlates with increased stock market participation.

How does this compare to GDP for the countries?

Progressive Rwanda has the highest market capitalization to GDP ratio at 18.2% followed by Kenya at 13.1% and Tanzania at 7% with Uganda lagging at less than one tenth of one percent.

Among the EAC nations, there are different levels of market awareness and appetite for investing as well as regulations encouraging or otherwise, local and foreign investors. The amount of investor accounts influences this metric as well as the value of the companies listed on the exchanges relative to the size of the overall economy.

Is the market capitalization of stock exchanges in East Africa expected to increase or decrease?

It is highly likely that these exchanges will increase in their market capitalization in the medium to long term. As these companies’ future profits grow, their stock value increases equal to the projected value of these companies as determined by the market. In addition, as new companies list on the exchanges the total value of the exchanges increases.

Further, the growth of an exchange depends on the volume of participants’ capital. If companies know that there is strong interest in buyers on an exchange then they will consider listing and the more investment that exists the more liquidity a market has in a virtuous circle for investment.

That said, each of the exchanges lists stock in their respective local currencies, so a decline in currency value respective to hard currencies such as the USD or Euro could reduce gains to foreign investors. So buying opportunities may occur after currency depreciation events. However buyers should beware as global markets are becoming increasingly correlated, the extent of which which may be a topic for another Indicator column for another issue.

How can I learn more?

This article uses statistics and figures from the stock exchanges from each country and supporting articles. To learn more visit:

Rwanda: http://www.rse.rw

Kenya: http://www.nse.co.ke

Tanzania: http://www.dse.co.tz

Uganda: https://www.use.or.ug

In addition, to find comparative statistics on exchanges throughout Africa visit http://www.african-exchanges.org/statistics

About the authors:

David L. Ross is Managing Director of Statera Capital and US Ambassador to the Open University of Tanzania active in growing companies in Eastern and Southern Africa through primary investment, investment advisory, strategic partnerships, and executive education. Connect on LinkedIn at https://tz.linkedin.com/in/davidlross1 or at [email protected]

Catherine Mandler is a Senior Analyst at Statera Capital. Connect on LinkedIn at www.linkedin.com/in/CatherineMandler or at [email protected]

source: exchange.co.tz