The domestic equity market is expected to continue its positive trajectory during the second quarter this year attributed to the ongoing economic recovery and Gross Domestic Product (GDP) growth according to market analysts.
According to the Zan Securities Chief Executive Officer Raphael Masumbuko, the recovery of the economy and GDP growth will subsequently make companies relatively more profitable pushing equity prices up in Q2, 2023 as companies begin to disclose their audited financials for the year ending 2022.
“We expect a grind-it-out market environment in which valuations could remain flat but with profit growth to supersede this and Equity outperformance to continue,” Masumbuko said.
Masumbuko noted that bond yields continued to push higher throughout Q1, 2023 on expectations of further central bank tightening which is expected to sustaindue to lessened inflationary expectations.
“The central bank however will still maintain its less accommodative monetary policy to tame second round effects of global shocks. We anticipate sustained low subscription rates for medium term papers and an aggressive pricing in upcoming auctions more so on the longer-term papers as bond investors seek to capitalize on short term less accommodative monetary policy,” he said.
The Alpha Capital Head of Research and Advisory Imani Muhingo however noted that the on-going wrestle against inflation is expected to benefit frequent bond investors, as bond prices keep falling and yields keep rising.
“In the same effect, banks will have to raise lending rates at some point, which shall raise banks’ interest income but suppress the borrowing appetite,” Muhingo said.
He added, “The most significant impact is the rising cost of funds for lending institutions, which, among others, is also caused by the substantial rise in financial awareness in the retail base. Banks now turn to the capital market to mobilize capital, prompting the introduction of new products in the market,”
Globally, amid higher interest rates, economic uncertainty and most recently banking sector turmoil many investors have moved into higher-than typical allocations to cash or short-term government bonds.