World Exchange Congress 2017: First step – get domestic capital markets right

Here are some key points from the panel on “Alternative exchanges and connecting the African markets: What do you need to know?” at the World Exchange Congress 2017 in Budapest. All are CEOs: Moderator: Hirander Misra, Chairman and CEO, GMEX Group; Thapelo Tsheole, Botswana Stock Exchange; Moremi Marwa, Dar Es Salaam Stock Exchange; Sunil Benimadhu, Stock Exchange of Mauritius.

Q1: How to develop frontier African stock markets? Benimadhu: “We look at what our niche products are, that we do better than others. We list those products on the exchange. Then we think: ‘How we reach out to the world and tell our story?’ We need to make sure trading on our exchange is easy, efficient and meets international standards. Then we can look beyond our borders and ask what does the region need?”

Q2: Should you offer risk mitigation for currencies? Tanzania, Botswana and Mauritius are all open for investors to take their capital out, Mauritius was one of the first African markets to drop exchange control; it was brave as it’s a small economy, but it found the capital flowing in soon became more than the capital flowing out.
Protecting against changes in value of African currencies such as KES and NGN will be very important for attracting foreign investors, for inter-African trade and for trading in derivatives linked to international currencies. Benimadhu – Mauritius (and other markets) are looking at exchange-traded linked products to mitigate currency risk “there is a strong need to come up with a very sophisticated derivatives platform for mitigating currency risk”.

Q3: Inter-African stock-market links? Marwa: “We are harmonizing our trading rules among the 4 markets in the region – Kenya, Tanzania, Uganda and Rwanda – with the help of the World Bank. We are building an infrastructure based in Tanzania combining our automated trading systems (ATS) and central securities depositories (CSDs). In the Southern African Development Community (SADC) we are also making some progress in harmonizing and integrating our markets.
“Investors would rather see us as one big market, instead of small markets. For any issuer, reaching out the whole region will attract wider interest. In Tanzania we are well placed for this and we encourage harmonization and integration.”
Benimadhu “I have seen examples of larger markets and we should learn from that and use their experience. Take the case of Australia and Singapore, they allowed brokers from Singapore to trade in Australia and vice versa to increase order flow. After 10 years they scrapped it, it did not generate expected volumes. Many of the others have also fallen short of expectations. One which is working is Hong Kong-Shanghai but that is for specific reasons, including access to the Chinese market.
“I am a contrarian. I believe linkages make sense, but before doing that it makes sense to grow the domestic market. Open up, attract foreign flows. Don’t spend a lot of time and energy on linkages, but focus first on growing the domestic market. We should follow regional links, but they should not sidetrack us from where we should concentrate, on our own markets”.

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