DSE set to gain from US-China trade deal

DAR ES SALAAM Stock Exchange (DSE) is poised to benefit from renewed investor confidence following the US-China trade deal

DAR ES SALAAM: DAR ES SALAAM Stock Exchange (DSE) is poised to benefit from renewed investor confidence following the US-China trade deal, as easing global uncertainty supports capital inflows into frontier markets like Tanzania.

Analysts said the deal is expected to revive confidence in global markets, which had been dampened by prolonged trade tensions.

The ripple effects are likely to spill into developing economies such as Tanzania, where frontier market funds may no longer face pressure from redemption calls.

Vertex International Securities Advisory and Capital Markets Manager Ahmed Nganya said they think the ongoing discussion between China and the US might provide positive traction for the global economy reversing the negative impacts.

“We expect the impact of the deal to spill into developing markets, Tanzania included, as most frontier funds will not have to worry about redemption calls and capital raising will ease,” Mr Nganya told ‘Daily News.’

Frontier and emerging markets, DSE included, have been grappling with negative economic consequences of some geopolitical conflicts and recent trade tariffs by the Trump administration poured more salt to the fresh wounds.

“Recent events have heightened volatility pushing most frontier market investors to either reduce or halt their activity in those markets,” Mr Nganya said.

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However, over the weekend, US and China agreed to suspend most tariffs on each other’s goods for 90 days, following high-stakes negotiations in Geneva, Swiss.

The temporary truce slashes China’s tariffs on the US from 125 per cent to 10 per cent and the US’s tariffs on China from 145 per cent to 30 per cent.

“The only way to have a momentum again is for these markets to post robust figures in terms of economic activity and corporate earnings,” Mr Nganya said.

Orbit Securities Mwanza Branch Manager Justin Amos said in times of heightened global uncertainty such as economic instability, disruptions in global business operations and broken supply chains the perceived risk in equity investments rises, prompting investors to become more cautious.

“As a result, many investors shift their capital toward lower-risk, stable instruments, such as government bonds, rather than equities in frontier or emerging markets like Tanzania. “This global shift in risk sentiment can reduce foreign portfolio investment into our local stock market,” Mr Amos said.

The impact of global trade uncertainty was felt on the Dar stock market, as the number of foreign participations declined.

Market data showed that yesterday, foreign participation was zero per cent on the buying and selling sides, and in April 25 was 2.89 per cent on buying and 16.60 per cent on selling.

“While reduced foreign participation means fewer inflows of foreign currency, it also presents an opportunity. The growth of local participation in the Tanzanian stock market signals a positive trend,” Mr Amos said “We begin to build an economy that is more self-reliant and resilient to external shocks.”

Dr Hilderbrand Shayo, an economist-cum-investment banker, said the tariffs have significant direct and indirect implications for global financial markets, particularly impacting emerging markets such as the DSE.

“Although the DSE isn’t as globally integrated as major exchanges like the New York Stock Exchange or the London Stock Exchange, it still feels the ripple effects of global trade policy shifts,” Dr Shayo said: “Importantly, even relatively small exchanges like the DSE are not totally immune to significant policy changes in large economies in today’s interconnected global market.”

Moreover, strong domestic corporate earnings especially from financials and industrials might spur foreign investors activity going forward.

Analysts in Kenya recently warned that Nairobi Securities Exchange (NSE) was facing the risk of foreign outflows as a result of the escalating regional conflicts and the potential global trade wars triggered by the US tariffs, highlighting the sensitivity of deep-pocketed foreign investors to insecurity and political noise in frontier and emerging markets.