Why are portfolio investors running away?

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Why are portfolio investors running away?
Stock market

A portfolio investment is a passive stake in an asset purchased with the expectation that it will provide income or grow in value, or both.

Total Bond and Treasuries market has seen a reduction from 11 percent of the total Bond and treasury bill markets to about 6 percent.

Treasury bills are risk-free short term financial instruments for investment regularly issued to the public by Government through Bank of Uganda.

The Investment Period for Treasury Bills is short term tenors of about three months (91 days), six months (182 days) and one year (364 days).

Treasury bonds on the other hand are long term financial instruments also issued by the government through Bank of Uganda to the investing public.

The Investment Period for Treasury Bonds is long term tenors of: 2 years, 3 years, 5 years, 10 years and 15 years.

In Uganda, the value of government bonds traded on the capital markets secondary market increased by 67.4 percent, representing Shs16.2 trillion in the second quarter of 2022 - which was up from Shs9.7 trillion in the first quarter of 2022.

The rise in value of the treasury bonds in the secondary market then demonstrated a high appetite for Uganda government treasury bonds by the investors due to the high yields in return of their investment.

Indeed, the Uganda Capital Markets quarterly bulletin for quarter two indicated that average monthly turnover had grown to Shs5.4 trillion in the review period from Shs3.2 trillion previously.

The Capital Markets Authority of Uganda, the government body mandated to regulate the Capital markets in Uganda validated the results saying government bond turnover on the secondary market had increased by 31.7 percent from Shs12.3 trillion in the second quarter of 2021 to Shs16.2 trillion in the period under review.

First forward, the picture looks different in 2024. According to Fred Muhumuza, a senior economist at Makerere University, the market has seen a big reduction from about 11% to about 6% of the total Bond and treasuries .

“Because when Investors come to invest they bring Dollars, so they convert to shillings," Dr Muhumuza said.

"These dollars they have brough so that leaves some in the BoUs reserves, so you have them, because banks buy for them in shillings, so when they want to leave, they again convert their Shilling into Dollar and they leave to markets that give them higher returns.”

While speaking at the IMF SDR Presser at Ministry of Finance headquarters, the Secretary to Treasury Ramathan Ggoobi said that the portfolio investors had run to the Kenyan market to invest in the tax-free maturing Euro Bond and infrastructure bond hence the reduction in the dollars in the Ugandan market.

Commercial lawyer Louis Namwanja Kizito told this website that such a reduction is due to poor regulation of the sector and highlighted the need to amend the Capital Markets Authority Act.

“There is no where in the world where the seller (issuer) keeps what they have sold to you," Matovu said.

"In Uganda’s case the Bank of Uganda sells to you the Securities and keeps them in their depository which scares away investors."

Both Louis Namwanja and Dr Muhumuza agree that for investors to feel safe and return to the Ugandan Market regulation should be done right.

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