BusyMarkets Kampala #009: UGX stable as taxes limit FX demand

The Ugandan shilling (UGX) was stable on Monday, with mid-month tax payments depressing demand for hard currency from importing firms. Commercial banks quoted the shilling at 3,725/ 3,735 to the USD. Also Uganda’s Central Bank maintains benchmark rate at 10 pct.

My assessment predicts a weaker shilling: Here’s why

The Bank of Uganda, on 13^th April, left the Central Bank Rate (CBR) at 10%, saying it is still effective to control the rise in inflation, bring stability to lending rate, and exchange rate and drive economic growth. The economy has evolved in line with the BOU’s expectations.

1. Political instability in the region, in neighboring countries Sudan, Kenya forces investors and stay long on the pegged currency USD as they monitor the situation.
2. Now that traders and investors have settled their mid-month statutory obligations, one can only predict a revitalized demand for the hard currency.

A look at the Uganda Stock Exchange

Not good results from Uganda Clays Ltd

The Board of Directors has proposed a final dividend for the year ended 31 December 2022 of UGX 450m (UGX 0.5 per share). The proposal is subject to approval by the shareholders in the AGM on 30th June. The dividend, which is subject to withholding tax, will be paid by 21st July 2023 to shareholders on the register at the close of business on 30th June 2023.

UMEME more volatile than 90% of UG stocks

UMEME Uganda is currently at a market price of UGX 331. UMEME is more volatile than 90% of UG stocks over the past 3 months, typically moving +/- 5% a week. UMEME’s weekly volatility (5%) has been stable over the past year but is still higher than 75% of UG stocks.

This offers a firm buying support level for the long-term investor. As an investor myself who owns UMEME stock, hold on to it. It’s stock with the best ROI on Uganda Stock Exchange. Also, trade with caution when dealing with Cipla, DFCU, New Vision and Uganda Clays Stocks.

Money Markets: Dissecting Euro bonds

What is a Euro Bond?

Simply put, euro bond is one that is denominated in a currency other than the domestic currency of the issuing country. With over 60 Sovereign Bonds issued by 20 nations, Eurobond investments have provided superior returns and are very liquid.

Features of a Euro bond

• US Dollar Investment.
• Short, Medium- and long-term instruments.
• Have periodic payments called Coupons. Coupons are paid twice a year (Every182 days)
• The minimum amount is USD 200,000.

Why go for a Euro bond?

1. Liquidity: A deep liquid market and Coupon payouts every 6 months.
2. Enhanced return on USD.
3. Cost: Tight Bid/Offer spreads.
4. Diversification: across the continent and tradeable.

Eurobond Trade Recommendation in Egypt:

EGYPT – USD

3 Year Bond

Maturity: 16/April/2026 Coupon rate: 4.75% Price: 79.972.

What volatility in the financial markets means for Uganda

Banking system challenges in the US and Switzerland resulted in volatility in the financial markets which could tighten the already tight financial conditions. These challenges were partly on account of loss of value of their financial assets caused by the rapid increase in interest rates by monetary authorities to combat inflation. The Ugandan banking system seems well capitalized, highly liquid and well placed to absorb emerging interest rate shocks.

However, there is need to continue monitoring events as they unfold in the region and globally. Below are the prevailing & Indicative interest rates per annum.

There will be two year and ten year bond on auction this week.

My assessment predicts a slight rise in interest rates: Here’s why

1. Public debt is still soaring and fiscal policy interventions will be intentional on borrowing as much as possible locally to finance local projects.
2. Inflation not yet exactly where government wants it. Target is 5% by end of year 2023

Seth Nuwagaba is an investment banker at one of the biggest banks in East Africa.