Africa-Press – Tanzania. THE US monetary policy shift has sparked a wave of optimism, extending well beyond the domestic market to encompass frontier and emerging economies globally.
As investors anticipate further rate cuts and increased liquidity, they are rushing to frontier markets, drawn by their growth potential and the prospect of higher returns in the wake of US policy changes.
The Federal Reserve cut key interest rates by a quarter points to a new range of 4.25 per cent to 4.50 per cent, the second reduction this year.
Orbit Securities Portfolio Manager and Head of Research and Investments, Ammi Mwamunyi, told Daily News recently that lower US interest rates tend to funnel capital into emerging markets like Tanzania, as investors look for higher returns.
“This shift hints at renewed investor confidence, as they anticipate further rate cuts and see potential not only in the country but in frontier and emerging markets as a whole,” Mr Mwamunyi said.
For instance, he said, in September, foreign investors at the Dar es Salaam Stock Exchange (DSE) changed course, with net inflows exceeding outflows and reversing the recent trend of capital exiting the market.
“On the broader economy,” Mr Mwamunyi said: “the Fed’s recent rate cuts could soften the US dollar, giving the shilling a chance to strengthen in response.”
Data shows that foreign participation in September slightly slowed, although foreign participation slightly slowed in September, with foreign purchases exceeding sales for the first time since April last year.
In September, Alpha Capital report shows that foreign purchases accounted for 8.45 per cent of total equity purchases, while foreign sales stood at 8.08 per cent.
This led to a net foreign inflow of 25.66m/-, a significant improvement from a net outflow of 4.34bn/- in August. Between April and August, cumulative net foreign outflows were 56.34bn/-.
Additionally, for the domestic consumers and businesses reliant on imports, a stronger shilling means lower costs on foreign goods a relief that’s already noticeable.
“Over the past three months, we’ve seen the shilling holding steady against the dollar, helped not only by these rate cuts but also by cashew nut selling season,” Mr Mwamunyi said.
“This appreciation in the shilling also acts as a natural buffer against inflation, especially for the imported goods that drive up prices locally.
“Yet, despite the Fed’s rate cuts, Donald Trump’s election as US president brings a layer of unpredictability and potential volatility,” he said.
An economist-cum-investment banker, Dr Hildebrand Shayo, said the interest rate reduction will have a variety of positive and negative effects.
“Over time,” Dr Shayo said, “the Federal Reserve’s quarter-percentage-point cut in interest rates on credit cards, mortgages and savings will affect millions of Americans and, more importantly, people worldwide, including those in Tanzania.”
Alpha’s Head of Research and Analytics, Imani Muhingo said this month was expected to bring significant global economic and geopolitical events.
“An additional rate cut could ease foreign exchange pressures in developing economies and potentially reverse the foreign portfolio investment outflows,” he projected.
With borrowing costs decreasing and global liquidity on the rise, investors are increasingly turning their attention away from traditional developed markets and seeking higher returns and growth potential in regions rich with untapped opportunities.
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