Foreign selling pulls Dar es Salaam Stock Exchange down 4.9% in October

The Dar es Salaam Stock Exchange recorded a sharp reversal in October as foreign selling and declines in major bank shares pulled the All Share Index down by 4.9 per cent. The DSE All Share Index closed the month at 4,424 points, compared with 4,654.42 at the end of September. Total market capitalisation declined by the same percentage to TSh38.57 trillion, while the Tanzania Share Index also fell by 4.9 per cent. Equity turnover reached TSh96.93 billion across 75,315 transactions involving 42.43 million shares during October’s 21 trading sessions. Foreign investors sold shares worth TSh44.08 billion while purchasing only TSh6.94 billion, producing net foreign selling of approximately TSh37.1 billion. Local investors accounted for 92.84 per cent of purchases, according to official DSE market data.  The figures show that domestic investors were willing to absorb a large foreign exit. They also reveal how movements in a small number of heavily traded companies can determine the direction of Tanzania’s entire equity market. NMB and CRDB controlled the month NMB Bank and CRDB Bank accounted for 77 per cent of October’s total equity turnover. NMB generated TSh39.12 billion in trading and ended the month 10.8 per cent lower at TSh1,820 per share. More than half of the counter’s turnover came through block trades. CRDB generated TSh35.54 billion and declined by 4.4 per cent to TSh2,840. Together, the two banks accounted for approximately TSh74.66 billion of the month’s TSh96.93 billion equity turnover. The Banks, Finance and Investment Index consequently fell by 8.4 per cent. This concentration means the 4.9 per cent fall in the wider market should not be interpreted as an equal loss across all listed businesses. It was heavily influenced by two banks and several large transactions completed in a market with limited buying depth at previous prices. Only four of 28 counters closed October higher, but all four were industrial companies. Tanga Cement gained 10.4 per cent, Tanzania Cigarette Company rose 6.7 per cent, Tanzania Breweries added 4.8 per cent and Tanzania Portland Cement increased by 1.8 per cent. The Industrial and Allied Index gained 4.9 per cent even as the broader market declined.  The divergence suggests that part of the market was rotating from banks towards industrial counters. However, trading in several of the gainers was also concentrated in block transactions or relatively limited volumes, so the price increases should not automatically be treated as evidence of broad investor demand. Foreign selling does not necessarily signal weaker banks The decline in bank share prices occurred despite continued earnings growth. CRDB Bank Group reported profit after tax of TSh672.1 billion for the nine months to September, an increase of 29.1 per cent. NMB reported profit after tax of TSh634.6 billion, up 17 per cent. CRDB’s net loans increased by 43.7 per cent to TSh18.44 trillion, while NMB’s loan portfolio grew by 27 per cent to TSh12.06 trillion. Both banks maintained non-performing loan ratios below 3 per cent. The combination of rising profits and falling share prices indicates that October’s movement cannot be explained solely by weaker operating performance. Foreign portfolio rebalancing, the need to realise profits, currency considerations and the limited capacity of the domestic market to absorb large blocks at existing prices may also have contributed. The DSE data do not disclose each foreign seller’s motivation. It would therefore be premature to characterise the transactions as a broad loss of confidence in Tanzania’s banking sector. For investors, the important distinction is between a price decline caused by deteriorating company fundamentals and one caused mainly by market liquidity or a large shareholder reducing exposure. The two situations carry different implications for future performance. Local investors provided stability but at lower prices Domestic investors purchased nearly 93 per cent of the shares traded during the month. That absorption prevented foreign selling from causing a more disorderly withdrawal of liquidity. It is a positive indication of the growing role of Tanzanian institutional and individual investors. Pension funds, collective investment schemes, companies and retail investors can provide a more stable ownership base when offshore investors reduce exposure. However, the sales still pushed prices lower, showing that domestic demand was more price-sensitive than the supply entering the market. The episode exposes a structural limitation of the DSE. A market can report strong turnover while remaining concentrated in a few counters and block transactions. High turnover does not necessarily mean there is deep, continuous demand across the full list of companies. NMB and CRDB generated more than three-quarters of October equity turnover, while the eight most active counters accounted for approximately 97 per cent. Smaller listed companies continue to experience limited trading, which can make their quoted prices less informative and raise the cost of entering or exiting a position. Broadening the range of liquid companies would make the market less dependent on bank shares and individual institutional transactions. Bonds remained the larger market Government bonds worth TSh644.27 billion were traded on the exchange during October, more than six times the value of equity turnover. Outstanding government bonds reached TSh34.29 trillion by the end of the month. Corporate bond turnover, by contrast, was only TSh676.5 million, with outstanding corporate issues valued at approximately TSh613.15 billion. This difference demonstrates where most of Tanzania’s capital-market liquidity remains concentrated. Government securities offer regular issuance, established pricing, relatively predictable returns and a larger pool of instruments. Equities and corporate debt remain considerably smaller. Strong demand for government bonds supports public financing and gives investors access to longer-term shilling assets. But the scale of the difference also shows the challenge facing companies seeking to use the capital market as an alternative to bank borrowing. The development of a larger corporate bond and equity market will depend on more listings, better disclosure, consistent dividend records, credible market research and a broader investor base. What investors should watch next November’s foreign flows will be the first test of whether October represented a one-off portfolio adjustment or the beginning of a more sustained exit. Large block trades in NMB and CRDB also deserve attention. If selling pressure diminishes while earnings remain strong, prices could stabilise. Continued disposals would keep the banking index and wider market under pressure because of the two counters’ size. Dividend expectations will become increasingly important as banks approach full-year reporting. Strong profits may support distributions, but investors must also consider rapid credit growth, capital requirements and whether loan quality remains stable. The performance of industrial counters will show whether October’s gains reflected a genuine sector rotation or temporary price movements in relatively thin markets. Finally, foreign participation must be considered alongside the exchange rate. Offshore investors evaluate returns in foreign-currency terms, meaning a profitable shilling investment can still produce a weaker dollar return if the currency depreciates. October was not simply a bad month for Tanzanian equities. It was a demonstration of how foreign flows, concentrated ownership and limited market depth can overwhelm strong company earnings in the short term. The domestic market absorbed the selling, but it did so at materially lower prices.