Archive for the 'Governance' Category
January 25th, 2013 by Tom Minney
This week the Nairobi Securities Exchange (www.nse.co.ke) has joined the rush into providing boards for small and medium enterprises (SMEs) with the launch on 22 January of the Growth Enterprise Market Segment (GEMS).
GEMS is designed to offer a regulatory and trading environment to meet the need of SMEs. The aim is that they can raise good amounts of initial and ongoing capital. They should also be able to boost their profile and enjoy more liquidity in their shares.
Chairman of NSE Eddy Njoroge said in a NSE press release: “The establishment of a GEMS market in Kenya will pave way for the listing of small and medium-sized enterprises on the exchange, which is a major driver of our country’s economy.” He also thanked the regulator for “showing commitment and support” in establishing GEMS. CEO Peter Mwangi added that the establishment of this market will become a fundamental contributor to the stability of Kenya’s overall financial system.
Kenya has a good community of experienced advisers to support companies who wish to list. The key intermediaries are the Nominated Advisors (NOMADs), who will assist companies to list on GEMS and to comply with good corporate governance and global best practices. Other professionals with background on GEMS include brokers, accountants and lawyers.
The NSE plans to offer a directors’ course on corporate governance to the directors of the “mid cap.” Companies, meaning those with middle ranges of market capitalization.
The NSE believes that SMEs are a key sector for achieving Kenya’s Vision 2030 and the United Nations Millennium Development Goals. Commenting during the launch,.
Eligibility criteria for companies wishing to list include: Being a registered public company; minimum fully paid-up capital of KES 10 million ($114,400); at least 100,000 shares in issue and free transferability of shares; adequate working capital and solvency; track record of operations for at least a year but no profitability record needed; 5 directors, of which a third should be non-executive; directors with no bankruptcy, fraud, criminal offence or financial misconduct proceedings for 2 years; competent board and senior management – at least 1 year experience in the business; A third of the board members must have completed Directors Induction Programme and the rest have to complete it within 6 months of listing; all issued shares to be immobilized; 15% of the shares must be available for trading & held by at least 25 independent shareholders within 3 months of listing; Controlling shareholders lock in for 24 months; NOMAD appointed by written contract.
The NSE is Kenya’s main securities exchange, offering listing and trading in equities and debt.
January 11th, 2013 by Tom Minney
Kenya is seeking to step up corporate governance in the capital market and guard against risks that threaten the financial system. The Capital Markets Authority (www.cma.or.ke) has announced today (11 January) that it has appointed a 9-member Capital Markets Corporate Governance Committee.
CMA Acting Chief Executive Paul Muthaura commented in a press release: “Since the issuance of the ‘Guidelines to Corporate Governance Practices by Listed Companies’ in 2002, there have been several developments nationally, regionally, and internationally precipitating the need for special attention to be paid to corporate governance to guard against risks that would threaten the financial system. Recent marketplace activities have pointed to the need to review the appropriateness of our regulatory regimes in light of the complexity of the challenges before us to ensure that we succeed in striking appropriate balances and manage costs of compliance.”
He said the committee should guide regular reviews of corporate governance standards for listed companies, in line with international best practice and trends; drive amendments to the corporate governance guidelines and regulations; identify legal and institutional strengthening requirements; address weaknesses in enforcement; and strengthen capacity building and professionalism of key stakeholders.
Ms Catherine Musakali, current chair of the Institute of Certified Public Secretaries of Kenya,will chair the committee and the members are: Ms Maryanne Macheru of the Registrar of Companies/Attorney General’s Office; Ms. Jackline Nyandege of the Ethics and Integrity Institute, nominated by the State Corporations Advisory Committee; Mr. Job Kihumba representing the Nairobi Securities Exchange; Rev. Geoffrey Njenga from the Centre for Corporate Governance; Mr. Mirie Mwangi from the University of Nairobi Business School; Mr. Mahmood Manji representing the CMA Board; Dr. Gituro Wainanina appointed as an independent member with experience on Corporate Governance from a regulatory perspective; and Mr James Mworia representing listed companies.
December 3rd, 2012 by Tom Minney
CAIRO – Sunil Benimadhu, CEO of the Stock Exchange of Mauritius and re-elected President of the African Stock Exchanges Association (ASEA) told the opening session of the African stock exchanges that the capital markets should play a key role in investment flows to drive growth. This is a summary of his keynote address:
The world is changing: In a chart of the top 10 world economies in 2011 the US heads the world and many European countries are there. But the whole picture changes when you look at 2050, you see Nigeria and Egypt in the world’s top ten economies. Six out of the top ten countries by GDP growth from 2001-2010 are Africa and if you look at the projections from 2010-2015 7 of the top 10 are African. It is extremely clear that we are witnessing a change.
This conference is addressing the right issues: How can we attract more capital flows to Africa, how can we use stock exchanges to support this? The themes are:
• How do we get the message across to the largest companies in Africa to list on the African exchanges? Many big companies are going to raise capital in other markets when they should be raising it locally.
• How can we get our political leaders actively to support the development of capital markets? If you look at the history of other emerging markets you see that capital markets have played a very critical role in driving their development.
• It is also critical for us to engage with key institutions, including the African Development Bank, so the institutions can help take the capital markets to the next level.
• Africa is growing at 5-6%, but how do we go about doubling the GDP growth, how do we move from resource-based to more value-added growth, how do we move up the value chain?
• We need to keep improving the business climate, while implementing inclusive growth that propels the middle class to the forefront of economic activity, while embracing democratic principles.
“There is a very fine line between Africa rising and Africa uprising”. Africa is on the cusp of an economic revolution today, the next 10 years are going to be very different and to bring very different lives for the people. To tap this tremendous potential we need to keep working very hard, making the right decisions.
The conference website is here www.aseaegypt2012.org.
November 6th, 2012 by Tom Minney
Some African governments are making it easier to do business in their countries, but it remains a key challenge. Excessive and unhelpful regulation put off local and foreign investors all over Africa and growth and development is held back by governments that lack interest and capacity to foster private sector growth which brings jobs, improvements to currency flows and tax revenues. Many African economies could score at low outlay by finding ways to streamline and improve business regulations, including systems to prune and get rid of old or contradictory laws, and by improving capacity at business licencing, tax and other government departments.
The business environment is rising higher on the agenda of African governments and more progress is being made, but there are still major issues. A leading report is the Doing Business report series by the International Finance Corporation and the World Bank of which the 2013 edition was published on 23 October. Two weeks earlier, on 15 October, the Mo Ibrahim Foundation published its latest Ibrahim Index on African Governance (IIAG). Since 2006, the categories Sustainable Economic Opportunity and Human Development have scored the strongest performances but there have been improvements in all of the sub-categories and over the last decade governance has improved across the continent.
The World Bank and IFC report, Doing Business 2013: Smarter Regulations for Small and Medium-Size Enterprises found that from June 2011 to June 2012, 28 of 46 sub-Saharan African governments implemented at least 1 regulatory reform making it easier to do business—a total of 44 reforms. Mauritius and South Africa are the only African economies among the top 40 in the global ranking. Sub-Saharan Africa is home to 17 out of the 50 economies which have made the most improvement in business regulation for domestic firms since 2005. Over the life of the report – this is the 10th edition – Africa has consistently recorded a high number of reforms and is increasingly competitive as a place to do business with other parts of the world.
Rwanda is a particular star of Doing Business, as having consistently improved since 2005 and a case study in this year’s report shows that it has implemented 26 regulatory reforms since then. In the past year Burundi has made 4 reforms and ranked among the 10 economies worldwide that improved the most across 3 or more areas measured by Doing Business—the only low-income economy on the list. The report says Sierra Leone is a major improver and adds that Liberia has been the 4th fastest improving country since 2007, with advances this year in electricity infrastructure and contract enforcement
Augusto Lopez-Claros, Director, Global Indicators and Analysis, World Bank Group, said in a press release: “Doing Business is about smart business regulations, not necessarily fewer regulations,” said. “We are very encouraged that so many economies in Africa are among the 50 that have made the most improvement since 2005 as captured by the Doing Business indicators.” African economies that have improved the most since then include Rwanda, Burkina Faso, Mali, Sierra Leone, Ghana, Burundi, Guinea-Bissau, Senegal, Angola, Mauritius, Madagascar, Mozambique, Côte d’Ivoire, Togo, Niger, Nigeria, São Tomé and Príncipe.
Singapore has been top of the global ranking on the ease of doing business for 7 years. The top 10 for business-friendly regulation were Hong Kong SAR, China; New Zealand; the United States; Denmark; Norway; the United Kingdom; the Republic of Korea; Georgia; and Australia.
Top 3 of the Mo Ibrahim IIAG are Mauritius, Cape Verde and Botswana, while Tanzania is highlighted as an improver and joined the top ten. Rising stars include Liberia which makes impressive development progress and scores major improvements over the past 5 years in safety and the rule of law (up 17.5 points) and in sustainable economic opportunity (a 10.5 point rise). Liberia has moved up 13 places in the rankings to number 34. Guinea has made progress on sustainable economic opportunity, participation and human rights since 2010 and climbed to 42. Sierra Leone has also improved its overall score with advances in safety and the rule of law with its score improving by 16.5 points in 5 years to number 30 in the index, up 10 places since 2006.
There is an excellent and brief report here on the top 10 African countries written by Ryan Hoover, of the highly recommended www.investinginafrica.net.
July 26th, 2012 by Tom Minney
Lots of useful commentary is published this week about what’s going wrong with the world’s leading capital markets and finance. This new bout of soul-searching follows the publication of Prof John Kay’s “The Kay Review of UK Equity Markets and Long-Term Decision Making” on 23 July and available here (and the Interim Report, published in February, with much of the evidence is available here.
The Prof says that equity markets are not working as effectively as they could. “We conclude that short-termism is a problem in UK equity markets, and that the principal causes are the decline of trust and the misalignment of incentives throughout the equity investment chain”. He says that successful financial intermediation depends on: “Trust and confidence are the product of long-term commercial and personal relationships: trust and confidence are not generally created by trading between anonymous agents attempting to make short term gains at each other’s expense.”
He blames the prevailing culture and says that people don’t only work for financial incentives, as widely promoted in current City culture – “Most people have more complex goals, but they generally behave in line with the values and aspirations of the environment in which they find themselves.” Prof Kay puts forward a series of 17 recommendations on how to make things better and this could be useful reading for anyone involved in developing capital markets with an aiming to help grow savings and create better performing businesses. This includes fiduciary standards of care if you manage other peoples’ money, diminishing the current role of trading and transactional cultures, high-level statements of good practice, improving the interactions of asset managers and other investors with investee companies, and tackling misaligned incentives in remuneration, and reducing pressures for short-term decision making. The Guardian newspaper’s Nils Pratley has a useful summary of some of the best recommendations here, ironically coupled with a beautiful rosy photograph of the City!
One background comment is by Evening Standard columnist Anthony Hilton here. He says “The behaviours that led Deputy Governor of the Bank of England Paul Tucker to use the word “cesspool” when giving evidence to the Treasury Select Committee on Libor come in a straight line from the reforms imposed on the Stock Exchange by the then Prime Minister Margaret Thatcher in 1986 when she forced it to open up membership to all comers, and in particular to abolish single capacity — the arrangement under which firms had to confine themselves to a single activity in which they acted for themselves or for the client, but not both… From being a servant of the real economy, finance began its journey towards becoming an end in itself, with deals done not because they had economic rationale but because they made money for bankers and costs, both direct and indirect, that impose a colossal and unnecessary burden on that real economy.” He adds that this kept the system honest “or rather it was dishonest in a less poisonous way. Until Big Bang, the problems came from dishonest people working in honest firms; today the problems are caused by honest people working in dishonest firms. The culture is rotten.” This brought world-beating businesses low “by policies designed to pander to the stock market rather than secure the businesses’ long-term future for its customers, employees and indeed the country.” He says the rewards of finance should belong to customers, not their advisers.
Kay also notes that index investing, as growing popular in some African markets with the rise of ETF (exchange-traded funds) and other derivatives, may not represent a strategy for representative returns, see this Financial Times summary. He also urges less securities lending.
Most of the leading commentators though conclude that the view is rather rose-tinted, and not in touch with the real world. The Financial Times Lex Column says (unfortunately this link may be subscribers only, but you did not miss much if you don’t find a way around): “Dig a little deeper though and this vision – which includes an attack on the efficient markets hypothesis – is flawed”. It says although investors should engage more with companies a falling share price is better incentive for a manager to perform well than a phonecall and that quarterly reporting helps people see what’s going on and reduces insider trading. It points to the UK’s “shareholder spring” in which investors forced change at companies such as Aviva and AstraZeneca. Another Financial Times summary of reaction is that Kay is “no silver bullet” and while people may agree with his views “some.. may prove challenging to implement in practice”. Some recommendations can be implemented by the industry, including investors’ forums for collective long-term engagement and good stewardship, others such as calls for asset managers to disclose all costs, including transaction costs and performance fees charged to funds, may be carried out voluntarily. Only a few may be carried out through legislation, and many others (apart from Lex) support removal of obligations for quarterly reporting and argue that managers’ time could be better spent elsewhere.
It’s a week of interesting reading for people, including many in Africa, building capital markets that are meant to serve economies, the creation of business growth and jobs, and also to encourage more long-term savings.
Discussion is very welcome!
April 6th, 2012 by Tom Minney
My favourite read, the Economist gives a rounding editorial here on why the world should back Ngozi Okonjo-Iweala for next President of the World Bank (www.worldbank.org). “May the best woman win!”
December 17th, 2011 by Tom Minney
The Securities Commission of Zimbabwe (www.seczim.co.zw) has declined to grant the Zimbabwe Stock Exchange (www.zse.co.zw – under maintenance), an operating licence, according to local media, and is challenging the exchange to provide a business plan. The Financial Gazette reports that the ZSE failed to provide critical information demanded by the regulator. ZSE CEO, Emmanuel Munyukwi, reportedly dismissed the SECZ claims, saying the exchange had complied with all requirements in terms of the law: “There is nothing like that. As far as I know we have confirmed and verified that all the required information is with the regulator,” he said.
According to a report in Zimbabwe Independent SECZ CEO Tafadzwa Chinamo summoned all members of the ZSE to attend a meeting. The Commission is reported to be concerned that the exchange has not automated and done away with the current paper-based trading system, despite suggesting that could happen by the end of 2011. However, the call-over meetings in Zimbabwe are often more active and lively than the screens of some of the less liquid African exchanges, which may even only record a few deals a day.
SECZ also said only 3 out of 20 stock-broking firms had been registered by the commission as having sufficient capitalization to continue and would issue their licences by circular. The regulator said there was concern that the exchange and most stock-broking companies did not get enough income to cover their expenses and remain viable, due to falling trading volumes. The Commission charges a yearly fee of US$3,000 for stock-broking firms and US$1,500 for individual stockbrokers.
According to the reports, the SECZ accused members of abandoning the exchange, given its current state of affairs, saying they needed to be proactive in the development and running of the exchange. It issued a circular to stockbrokers saying the ZSE had to comply with its licencing requirements and had to provide SECZ with information specified in Section 30 of the Securities Act, like other capital market intermediaries and “given that it operates as a Self Regulatory Organisation”.
The capital markets regulator reportedly wrote: “It is worrying therefore that the commission has not yet issued the ZSE an operating license due to the failure by the ZSE to provide the required information. Of particular concern to the commission is the non-submission of the 2010 financial statements which would enable the commission to verify the exchange’s capital adequacy. Also of concern is the lack of a business plan to satisfy the commission that the ZSE is working towards specific goals in developing the market.
“The exchange is owned by the members and as such it is the responsibility of members to ensure its smooth running. Members have a responsibility to resource the ZSE and see to it that the necessary management structures are established and supervised for the day- to-day operations of the exchange,” said Chinamo. “As the Commission we have reason to conclude that members have abandoned this responsibility and we seek to establish members’ position.”
The meeting was adjourned after brokers failed to reach consensus and they have nominated a 5-member committee, working under acting ZSE board chairperson Eve Gadzikwa, to sort out several issues affecting the viability and integrity of the exchange and report within a week. The committee includes veteran stockbrokers, Tediuos Matsaira, Bart Mswaka, Jeff Mhlanga, Edward Mapokotera and Rufaro Zengeni.
Chinamo reportedly added: “Given the important role members play in operating the exchange the Commission is concerned by the non-transparent manner in which new members are admitted. Several applications are awaiting approval months after submission resulting, in a number of firms operating without two brokers as stipulated in the SEC rules.” One broker was reported as saying that only having 30 stockbrokers was a limitation: “I believe that if the membership grows the bigger the pool of ideas we have and this can increase the pace of transformation of the market,” a leading broker indicated.
November 28th, 2011 by Tom Minney
Share prices on the Tunisian Stock Exchange (Bourse de Tunis – www.bvmt.com.tn) have been moving ahead all November, starting with a positive reaction to the meeting between Rachid Ghannouchi, leader of the Islamist Ennahda party and stock market executives only days after the election and moving forward as the politics progressed well. Even before the election results were finalized from the 23 October election that swept Ennahda to power, Ghannouchi was meeting the bourse on 26 Oct to send the message that the government would be “business friendly”. It is the first Islamist party to win power since Hamas’ 2006 victory in Palestine.
According to Bloomberg, the TUNINDEX dived from a close of 4636.67 on 20 Oct to 4538.41 on 24 Oct, but bounced back very fast and reached 4718.16 by 8 Nov. The index has been moving sideways since 4730.69 close on 18 Nov, back to levels last seen in early February. The low was 4033.43 on 25 Feb. The recent high was 5695.82 on 30 Sept 2010.
According to a report on Reuters, a party official said Ghannouchi met the market executives “to send the message that the stock exchange is very important and that he is in favour of more listings to accelerate economic growth and to diversify the economy.” Reuters adds that the Tunis stock market index fell sharply when trading resumed after the Sunday election, but rallied on news of the meeting and prices were up 1.13% by mid-morning.
Reuters reports that Ghannouchi spent 22 years in exile in Britain and has stressed his party will not enforce any code of morality on Tunisian society, or the millions of Western tourists who holiday on its Mediterranean beaches: “He models his approach on the moderate Islamism of Turkish Prime Minister Tayyip Erdogan”, according to writers Tarek Amara and Christian Lowe.
Tunisia’s Constituent Assembly held its historic first session on 22 Nov and Ghannouchi signed a coalition agreement with the heads of two junior coalition partners, Moncef Marzouki of Congress for the Republic and Mustafa Ben Jaafar of Ettakol. In the election, which saw a turnout of over 90% of registered voters, Ennahda took 89 seats of the 217-member assembly, Congress won 29 and Ettakol 21. Under the new agreement, Ennahda secretary-general Hamadi Jbeli will hold the most powerful post of prime minister, while Marzouki will be in the largely ceremonial role of Tunisian president. Ben Jaafar will be speaker of the assembly, which has the task of drafting a new constitution. They pledged to hold elections within a year.
There is a challenge to get the economy moving. Reuters cites Central Bank of Tunisia (www.bct.gov.tn) governor Mustafa Kamel Nabli saying on 24 Nov that the economy grew 1.5% in the third quarter but growth in 2011 will be close to zero. Unemployment stood at 18.3%. However, the draft budget presented earlier in November foresees 4.5% growth in 2012, after 3.7% growth in 2010. Nabli told Reuters “”We expect GDP growth of 4 percent next year but the European crisis will dampen these figures.” The World Bank, European Union, the African Development Bank and the French development agency has been giving an emergency $1.4 billion funding package. Nabli said another $5 bn will be needed next year to support the budget.
October 28th, 2011 by Tom Minney
The next step for Africa’s securities exchanges is critical for the continent’s development. There is a huge demand for capital to be put to productive use in what could be the world’s fastest-growing continent, with a dire need for fast growth to drive out poverty. There is also a tide of international risk capital, looking to fund that growth and share in the profits. Between the two are the capital markets, challenged to move fast to become liquid, transparent and effective.
Lots of these topics are on the agenda for The 15th Annual African Securities Exchange Association conference (www.aseaconference2011.ma) (in Marrakesh, Morocco), which looks to have an excellent agenda. Casablanca Stock Exchange is the host, the theme is “Africa, alive with opportunities!”
Top speakers include key opinion leaders such as Thomas Friedman, Mark Mobius and maybe Christine Lagarde of the IMF. Expect speeches from Sunil Benimadhu (Stock Exchange of Mauritius and chair of ASEA), Karim Hajji of the Casablanca bourse, leaders of African securities markets and top speakers from several world bourses including BM&F Bovespa, Istanbul, NASDAQ OMX and the London Stock Exchange, with India’s National Stock Exchange and NYSE Euronext to confirm. They will be joined by finance ministers, bankers, analysts, traders, investors and many more.
Topics on day 1 include
• “The financial crisis: Is there a pilot in the plane?” Top analysts, bankers and traders, possibly joined by a European Commissioner from the heart of the crisis
• The economic implications of the “Arab Spring” for the continent, featuring key Ministers who are rebuilding post-crisis countries, a strategist and others
• Capital markets and BRICS (see previous story on stock exchange link-ups) – hear from CEOs and Executive Directors of key BRICS stock exchanges and Emergent Asset Management
• Nursing Africa’s future IPOs: heads of top African stock exchanges from Mauritius to Morocco, via Ghana and maybe Nigeria, plus PAI Partners, a leading French private equity firm
• A new FTSE-ASEA African index.
Day 2 tackles
• Regulation for cross-border development: Regulators from Morocco and the central African stock exchange, plus long-term Africa bull stockbroker Jonathan Auerbach
• Cost-effective and scalable technology options for emerging markets exchanges – featuring Tony Weeresinghe of the LSE, Anne Ewing of NASDAQ and maybe Joseph Mecane of NYSE Euronext, 3 top suppliers of securities markets systems to the continent who hold many of the keys to the next stage of evolution.
• “What’s hot in Africa today?” with a host of top speakers from politics, consulting, banking, mining, economics and development finance covering energy, infrastructure, mining, industry, agribusiness and others.
OPINION: Please note the Day 2 morning topics address critical and urgent issues of how African stock exchanges can work across (colonial) borders to build liquid and effective markets, part of the grand process of African integration and building viable economies.
Expect participants from over 100 countries. The ASEA AGM and committee are on 11 Dec and the conference starts on 12 Dec. The official language is English with Arabic and French translations.
Unmissable! Book the conference here via the ASEA website (www.africansea.org).
Warning!! You may not want to come home. The conference is in Hotel Palmeraie Golf Palace & Spa. The conference website says: “As a backdrop, the majestic, silvery, sentry-like summits of the High Atlas stand out. At the foot of the mountain lies a beautiful city, built in red and surrounded by age-old palm trees. Monuments defying time form a string of pearls for her. An enticing labaryinth, created centuries ago, of old ramparts meanders along its slender “body”. In this fairy-tale decor, lies Marrakesh the legendary; Marrakesh the imperial, the pearl of the south, bathed by an invigorating sun all year round.”
October 28th, 2011 by Tom Minney
Mark Mobius, the veteran emerging markets investor and head of Templeton Emerging Markets (www.franklintempleton.com), is bullish about the Nairobi Securities Exchange (www.nse.co.ke), although it is the worst-performing stock market in sub-Saharan Africa this year, according to an article on 27 October in the UK’s Financial Times.
According to the article, by Katrina Manson: “A long-term investor, Mr Mobius makes his money from yo-yoing frontier markets. Kenya’s has see-sawed between losses of 41.4% after post-election violence in 2008 to best sub-Saharan performer excluding South Africa last year, with a rise of 28.3%. Domestic investors tend to have both less money and less time to play with.” She also cites Aly-Khan Satchu, chief executive of Rich Management (www.rich.co.ke), a Kenyan financial services firm as saying the 2011 collapse is a “rout”. Domestic confidence is low, including among many of the 800,000 people who invested into Safaricom’s 532% subscribed IPO (KSh5 in the 2008 IPO, KSh3.05 at present).
Kenya has seen currency weakness, foreign capital flight, high inflation (it was 17% in September) and drought. The NSE has seen big cuts in volumes and much less participation by foreigners, who used to dominate trading, partly because of a global flight from risky assets. Share price indices have slid, losing the strong gains of 2010. Local investors see better gains from bonds, real estate and family firms.
The IPO of British American Investment Company Kenya only achieved 60% of its target (as reported on this website) and Kenya Airways seems to be holding back a share offer in which it wanted to raise $250 million for expansion. According to the article, Satchu said: “You can’t be issuing IPOs that flunk at the first hurdle. There has not been a successful IPO since Safaricom and that has impaired the stock market. They need a flagship discounted offer and will languish until they do it. Right now, the government couldn’t raise tuppence.”
The also article quotes Stella Kilonzo, head of the Capital Markets Authority (www.cma.or.ke), as blaming the stressed economy. She says there have been 3 years of reforms to boost disclosure and set more stringent requirements and these will eventually pay off. This year the NSE was renamed a “securities” rather than “stock” exchange in anticipation of a new bond index, futures and derivatives trading, exchange-traded funds and a new small and medium sized business index among others. If these come into operation, diversification could help the market.
There is still a cloud over the bourse from a scandal after stockbroking firms collapsed owing their clients money, some after allegedly trading their clients’ money illegally. No-one has yet gone to prison although court cases continue, and not everyone has been compensated, partly because the compensation fund does not have enough resources. Ms Kilonzo says regulation is now tighter.
Reportedly, a court case against the CMA by a collapsed brokerage firm that has been under statutory management since 2007 last month halted a plan to demutualize the NSE, including selling part of it and listing its shares on the Nairobi bourse. According to some analysts, demutualisation could help clean up the market by separating stockbrokers from the exchange’s owners.
Sentiment may be changing, after the Central Bank of Kenya (www.centralbank.go.ke) moved aggressively to push up interest rates by 4 percentage points this month, which may stabilize the currency and bring back investors. Good rains and strong investment in infrastructure could fund growth in 2012, although worries remain about elections.
Manson quotes Mobius: “People are fearful of coming in, so whoever goes there makes a bundle. We may go and buy more at a cheaper price.” The Frontier Markets Fund is invested in Kenya Airways and Safaricom.