East African Business Week

DAR ES SALAAM, TANZANIA - The current high inflation rate of 16.8 per cent hasn't impacted significantly on the stock market performance because the equities are long term fixed assets and not fixed-income securities and cash, which are sensitive on the same.
Stockbrokers have it that equity holders are relatively protected from inflationary risks and also shares yield gains are less affected by drastic shilling depreciation.
"After all, rising prices mean higher corporate sales revenues hence higher profits," Zan Securities Chief Executive Officer Raphael Masumbuko said, "provided costs do not rise even more sharply."
He said last week, the stocks would hold their value assuming that inflation rate would not keep rising. The inflation rate at 16.8%, is a decade high while the shilling continued to depreciate to almost Shs1,700, which is a lowest level of Tanzania's currency in 45 years.
 "It is often pointed out in this context that a share is based on an underlying physical capital stock, which is a real entity and has a value that cannot be eroded by inflation," Mr Masumbuko said.
He said stockholders are safe because dividend payments and share prices-redemption value-would be inflation-proof as a result of the adjustments to price inflation.
On his part, Orbit Securities CEO Lauren Malauri said foreign buyers gain more as the same dollar yesterday could buy more shares today because of depreciation.
"An investor who placed his bid to buy, say, Precision Air at IPO (initial public offer) will be getting more shares after factoring exchange rates," Mr Malauri said.
Though, he said, the market has experienced little trading from foreigners in the last two weeks to see the actual impact of shilling depreciation on number of shares foreigners gets.
On dividend yields, the Orbit CEO said, the rates are calculated using interest rate and inflation rate, hence does not erode the returns to stockholders.
Nevertheless, Mr Masumbuko said, a stockholder may feel the impact of inflation rate if he decided to sell his shares during the high inflation period and use the proceedings for consumption purposes.
The bad side of the shilling depreciation is when a company's import bill is higher than its exports thus suffers currency exchange loss.
But if it imports less and exports more finished goods, the firm will register a foreign exchange gain.