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Alliance Capital blames bourse woes on economy

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A financial advisory firm says Malawi’s current tough economic scene compounded with incredibly high inflation rates, high interest rates and a struggling currency have caused many investors to frown the stock market.

In its weekly economic commentary released Tuesday, Alliance Capital Limited says for an astute investor looking to invest long-term for their children and grandchildren, the Malawi Stock Exchange has been less impressive and appealing to many.

It says when MSE came out as the best performing in Africa in 2013, there were signs that there was an outstanding investment opportunity on the stock market with listed companies ranging from the banking industry to property development.

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Alliance Capital says, however, increased borrowing from the market by the government has made Treasury Bills more attractive to investors who now prefer them to stocks.

“Over the past months, there has been increased sales of government securities which have spiked up Treasury bill yields. The ripple effect of high T-bill yields has trickled down to the stock market which is already in panic,” observes Alliance Capital.

“In a tough economy like Malawi with high inflation rates, most investors are risk averse as such demand for T-bills has increased. Investors would rather invest in these risk free but high yielding government securities than taking the money to the stock market,” it says.

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It also says the tough economic environment in the country has affected performance of many companies increasing the risk of buying stock in these companies.

“Most players have taken a cautious approach on investing on the stock market where most stocks are yielding lower than money market instruments,” says Alliance Capital.

The other reason affecting the stock market performance is the misconception held by many on the listing requirements of the Malawi Stock Exchange which has made a lot of companies to stay away from listing on the local bourse.

“It is also important that market players are sensitized about the role of a thriving capital market in an economy and a lot of misconception about listing on the Malawi Stock Exchange should be cleared to entice more investors into the market for stocks.

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