Understanding The East African Stock Markets
From The Exchange. Story by Caroline Njoroge, senior analyst at Statera Capital.
This month’s indicator of $32.2 billion is the total market capitalization in all the stock exchanges in the East African Community based on their listed companies’ current share prices and the total number of outstanding stocks.
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. Burundi does not have a stock exchange set up.
How many investor accounts are on the stock exchanges?
It varies significantly by country. In Kenya, about 4 percent of the people participate in the stock exchange whereas in Tanzania there are estimated to be only 200,000 accounts — less than one 1 percent of Tanzania’s total population.
Increased financial literacy, wealth, and familiarity with stock investing typically correlate with increased stock market participation.
How does this compare to GDP for the countries?
Rwanda has the highest market capitalization-to-GDP ratio at 18.2 percent followed by Kenya at 13.1 percent and Tanzania at 7 percent with Uganda lagging at less than 0.1 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.
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.
Read more at The Exchange.