A yearly market performance report compiled by the Botswana Stock Exchange (BSE) indicates from a sectoral perspective the reduction of the listed local banks’ weight to the domestic company Index (DCI).
The DCI tracks the performance of domestic companies trading on the BSE and contains information on the local bourse between January and December 2016.
Based on sectoral contributions to the performance of the DCI, the report says the weight of the banking sector has been the most significant.
“However, the market capitalisation of the banking sector relative to total domestic market capitalisation has declined from 46.9 percent in 2012 to 30.5 percent in 2016 primarily due to additional listings in other sectors such as the retail and wholesaling and ICT over the years.
This has helped to reduce the reliance of the DCI on the banking sector performance which is ideal given that the index should to a larger extent be representative of the overall performance of all companies listed on the Exchange,” it says.
Market capitilisation refers to the number of issued and outstanding securities listed for trading for an individual issue multiplied by the price to give the market value.
According to the report, the overall performance of the DCI registered a decline of 11.3 percent in 2016, the cause of which is said to be from the negative performance of the retail and wholesale, banking and the financial services and insurance and the information and communications technology sectors.
In total, the report says, these four sectors contributed to the decline by 15.8 percentage points. This decline is higher than the positive contribution made by Property & Property Trust, Energy, Security and Tourism sectors at 4.5 percentage points.
In other news, it seems that the reduced influence of the banking sector to the DCI is not the only change that has been observed within the banking sector. The E-consult economic review for the 2016 fourth quarter observed declining liquidity in the banking sector, which it indicated as a potential “troubling” sign.
It identified capital outflows and the spending pattern of pararastals prior to the end of the government fiscal year.
“In view of the emerging interest rate differential between Botswana and South Africa (where rates have been rising), and the strengthening SA rand, such outflows are to be expected. Declining returns on the Botswana Stock Exchange and in the property market, coupled with perceptions of a deteriorating business environment and economic growth prospects, may also be driving capital outflows,” the report says.
“There are also indications that government is delaying or deferring payment due to firms for the procurement of goods and services. This means less money deposited in the banking system and greater use of loans and overdrafts, which further reduces liquidity,” according to E-consult.
The review, however, indicated that currently there are no major liquidity related concerns but pointed toward keeping a close eye to the banking system developments.
The additional listing of companies outside the banking sector is a sign of diversification of sectoral listing on the BSE which the bourse regards a welcome development.
On a measure of liquidity however the banking sector made the highest contribution to market liquidity as cited by the report. “The Financial Services sector contributed the highest to market liquidity on account of the liquidity ratio followed by the retail and wholesaling sector. The two sectors contributed 1.88 percent and 1.34 percent during the year under review,” says the report.