Trading activities and volumes on Rwanda Stock Exchange (RSE) decreased by 22.7 per cent in 2023, compared to the same period in 2022, officials said. About Rwf322 billion was raised on the local bourse, according to official statistics obtained by The New Times.

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Despite the decline, Rwanda Share Index (RSI) and RSE All Share Index (ALSI) rose by 3.35 per cent and 0.73 per cent, respectively, to close at 113.30 and 143.78 per cent.

For context, Rwanda leads the region in the share indices. The Nairobi index decreased by 28.44 per cent, to close at 91.46 per cent, while Uganda decreased by 26.11 per cent to close at 895.9 and Tanzania decreased by 5.94 per cent to close at 1766.30.

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According to the RSE breakdown, there were 69,654 active investors on record, as of November 2023, an increment of 17.01 per cent in new investor numbers compared to November 2022.

Celestin Rwabukumba, the RSE Chief Executive, pointed out that among the active investors, domestic investors account for 94.26 per cent, and other East Africans are 4.39 per cent while 1.35 per cent are international. Rwabukumba told The New Times that, among other reasons, performance decreased due to general market correction.

He added: "There are general tight liquidity issues and inflationary pressures coupled with currency depreciation and uncertainties due to the current local and global economic situation, hence investors’ appetite for debt instruments.”

Rwabukumba also said there is a lack of new products on the market to attract investors.

Lack of knowledge about how the market operates

Globally, markets remain jittery, Rwanda’s inclusive.

But Rwabukumba pointed out that the local market, being a relatively small and a new developing one, "we have a lot of challenges in getting companies to come to the market as their first choice for fundraising.”

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"This is often caused by a lack of enough knowledge about how the market operates and the benefits associated with using it. There is also resistance to change and fear of disclosure in addition to perceived associated costs and risks to going public.”

Equally challenging, Rwabukumba added, is the development of the secondary market, which largely stems from problems in developing one or more of the other building blocks of the market.

"These may include the limited number of domestic institutional investors and limited participation of non-resident (institutional) investors, the lack or limited offerings in the primary market, lack of benchmark bonds (and investable assets in general).”

Others are, he said, the "lack of repo, or securities lending facilities, not well-established trading mechanism, and underdeveloped market infrastructure.”

The consequences, Rwabukumba admited, are a reduction of incentives to trade and the prevalence of the buy-and-hold investment strategies, which hamper the development of a liquid secondary market.

Market not automated

Rwabukumba, who doubles as the Chairperson of the East African Securities Exchanges Association (EASEA), also highlighted the low savings level and access to finance as prevailing challenges.

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"In addition, our market not being automated and most intermediaries having shops in the capital city does not help either. Even those who are in rural areas or diaspora cannot access the market as we do not yet have Direct Market Access (DMA).”

Twelve years since its inception, only 10 companies are listed. This means that, on overage, 0.8 companies list on the local bourse every year.

Well-diversified portfolio can help mitigate risks

For Nigel Green, deVere Group’s chief executive, one of the world’s largest independent financial advisory and asset management organisations, "significant opportunities remain, but investors should avoid complacency.”

Green noted that one key lesson from the market’s volatility is the importance of staying vigilant and adaptable. Complacency, often born out of prolonged periods of market stability, can blind investors to potential risks, he said.

"The world is a dynamic and interconnected system, susceptible to a myriad of geopolitical, economic, and environmental factors. As such, assuming that the status quo will persist, this can lead to financial vulnerability.”

The current performance, he added, also reinforces the importance of diversification in an investment portfolio.

"A well-diversified portfolio can help mitigate risks associated with the volatility of individual assets or sectors. By spreading investments across various asset classes, geographies, and industries, investors can enhance their resilience to market fluctuations.”

Green shared similar views with Rwabukumba who argued that while integration with the rest of the East African Community markets has had its setbacks on the infrastructure front, there is a renewed momentum that could make Rwanda’s market infrastructure fully integrated by the end of the first quarter of 2024.

"This strategy was meant to integrate our market with the rest of the region to tap into the larger pool of investors and capital available within the region and also allow Rwandans investing public to have access to investment opportunities within the region,” he added.

"The benefits are many since the deepening of the capital market and continued promotion of the savings culture among Rwandans would also be an added advantage to the government, as it would increase participation of the general public in formal financial instruments and ownership of country assets by Rwandans and other passive investors from anywhere in the world.”

Asked about the potential listings, Rwabukumba told The New Times that several applications have been received, adding that there were at least two listings planned for the market.

"There is renewed focus on diversifying and attracting new investor base, especially the diaspora, and more retail investor participants as well as full automation of our trading and linking to the regional capital market infrastructure.”