Archive for the 'Strategy' Category
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 24th, 2012 by Tom Minney
A new securities exchange in Lusaka (Zambia) is installing tried-and-tested bond and derivative trading software and says it will be ready to launch operations next month, May 2012. BaDEx has trading platforms that include spot and derivative trading in bonds, currency, commodities (such as derivatives on metals and silo certificates on the spot market) and a variety of other derivatives including agricultural commodities, precious metals, equity and energy.
There is also a central scrip depository system (CSD) with a separate core management, risk solution, surveillance and settlement systems and platforms. The CSD will apparently link to CSDs in South Africa, Europe and the US and with the central Bank of Zambia’s real-time gross settlement system.
BaDEx, also known as Bond and Derivatives Exchange, reports that it was licensed by Zambia’s Securities and Exchange Commission on 1 January 2012 and the licence covers all securities under the Securities Act – bonds, equity, derivatives and commodities. It has signed a contract effective 12 March with South Africa’s STT (www.sttsoftware.co.za, which has also provided the JSE’s bond trading software for many years), for STT to immediately deploy trading, clearing, settlement and surveillance systems, and systems for auctioning government securities that will be suitable for the central bank, among others.
Dominic Kabanje, CEO of BaDEx, told AfricanCapitalMarketsNews that the exchange is a public-liability company owned by “banks, pension funds and private companies including the major securities dealers in Zambia”. He says they started with 6 local stockbroking members (approach stockbrokers Madison Asset, Integral Initiatives, Intermarket Securities, Laurence Paul Investment Services, Pangaea Renaissance, African Alliance Securities for more information) but are also looking for remote members, working with a South African merchant bank.
Mr Kabanje said they are now doing primary listings. BaDEx will start secondary trading using an online, Internet-based platform when the systems go live and are also seeking to partner with an international clearing house. In a press release he said they had been excited for 18 months: “We are glad to have finally concluded and signed the contract with our software systems vendors. STT applications have been tried and tested in the South African financial markets at the Johannesburg Stock Exchange (JSE), who have used this software for the past 18 years.
“We are currently setting up a network of domestic and foreign-based settlement banks, local and remote foreign members and dealers, institutional underwriters, a clearing house as well as primary panels of domestic, regional and international investors. We plan to link up all willing domestic and regional banks, institutional investors, pension funds, treasury departments, the local central bank, the government debt management office and the local member brokers to our system by providing interfaces and online access to our platforms.
“We will also shortly join the international community of CSDs in South Africa, Europe and the United States initially to facilitate faster and smoother clearing of international securities transactions. The applications from STT and others will enable us to do this and in addition will allow us to compete internationally for bond and derivatives business”.
“I do not see any obstacles from the Zambian side for companies wishing to list. Even SA companies can list on BaDEx. We want Zambian companies to dual list on JSE and BaDEx. At BaDEx we are implementing SADC protocols on the free-trade area as well as enhancing intra-regional trade. An exchange is one such conduit for regional trade. We will, however, have to deal with the problem of exchange controls in SA.”
Michelle Janke, STT’s Managing Director, said the company was happy to reach further into SADC: “We have worked closely with the executives of BaDEx for more than a year, and the closely formed relationship will stand us in good stead over the coming months whilst we deliver all the software applications and prepare the new securities market in Zambia to go live. We hope that in due course through an ongoing cooperation between BaDEx and regional merchant banks we can assist in transforming Lusaka into a key financial hub within the SADC region. We will be there to make this happen operationally.”
Products to be traded include: corporate bonds, municipal bonds, currency futures and options, interest-rate derivatives (including swaps), equity derivatives and commodity derivatives on underlying copper, cobalt, gold, oil, wheat, soya and maize spot markets, bond derivatives market, spot bond market, spot and currency derivatives market, commodities derivatives (including metals) and the commodities spot markets (with silo certificates), agricultural derivatives market, spot equity and equity derivatives markets, precious metals derivatives market and energy derivatives market.
February 24th, 2012 by Tom Minney
The spate of mega-mergers and competition among the world’s biggest exchanges continues, despite the move by European regulators to ban Deutsche Börse (DB) and NYSE Euronext (NYX) from forming the world’s biggest exchange. Both are stepping up activities in selling exchange technology and looking at other new directions.
According to a report in the Wall Street Journal, both see their independent futures driven by selling technology and market services to other exchanges and traders, in competition to other exchange technology providers CME Group Inc., Nasdaq OMX Group Inc and London Stock Exchange Group PLC (LSE) – the last two have systems running in more than one African exchanges. DB systems are in use in exchanges in Ireland, Slovakia and Austria, and markets in Japan, Qatar and Poland use NYX technology.
NYX has said it plans to more than double annual revenue from its technology arm to $1 billion by 2015. DB said it would create a new information-technology and data unit to extol the virtues of German engineering by consolidating its existing services in supplying price data and other market information into a new unit that will also export the systems that run the German company’s stock and derivatives markets. Together the businesses last year contributed about €92 million ($120.4m) of DB’s €2.3 bn in revenue. Chief Executive Reto Francioni said: “In the process, we can bolster our technology leadership, strengthen customer relations and pack a more powerful punch overall.”
The article comments: “The world’s major exchange operators have in recent years viewed the sale of technology services and data as a growth driver, mitigating the ups and down of trading fees. Selling the hardware that powers trading and back-office services is also a useful path for tapping growth in emerging markets. Russ Chrusciel, head of derivatives risk-management services for trading technology company SunGard, is quoted saying: “Exchanges today at their core are technology companies. What used to be a crowd of several hundred people on a trading floor has turned into a conglomeration of buildings, servers and technology architecture.”
Stock exchanges market capitalization (source Bloomberg)
LME in the target zone
By today (24 Feb), key metal traders were starting to voice objections to the planned sale of the London Metal Exchange. NYX is said to be on the list of potential bidders who also include CME Group, Hong Kong Exchanges and Clearing Ltd and the InterContinental Exchange. According to a Reuters story, Stefan Boel, board member of Aurubis, Europe’s largest copper producer, said: “”People are getting blinded by the dollars and euros which they can make out of it. It’s all about the valuations of the LME and possible profits. But we’re forgetting the fundamental fact that the LME was set up as a body for price discovery and risk protection for the non-ferrous metal industry. It has a true industrial purpose.” LME contracts allow participants at many stages of the metal-supply chain, including miners, smelters, fabricators, merchants and consumers, to hedge against price risk. It differs from other futures exchanges because of its unique prompt-date structure.
There is also a report that NYX is considering a bid for the LCH Clearnet clearing house. The LSE is also in talks on buying a controlling stake in LCH. LCH is the go-between buyers and sellers and ensures a deal goes ahead if one of the parties fails to pay.
On Competition
The Economist magazine, commenting before the Euro ruling on the DB-NYX merger, gave some interesting insights into the dynamics of exchange mergers and liquidity: “But there are reasons to think that the deal could be beneficial to investors. Exchanges are platforms on which buyers and sellers can meet, so a lower number of exchanges, which increases the potential for buyer-seller matches, can be better than a fragmented system. In addition, making all trades on one exchange could lower investors’ costs. This is because some assets (gold and equities, say) tend to be negatively correlated, so risks offset each other somewhat. An investor wagering that both gold and equities will go up should need to provide less collateral if a single exchange is used. Economists advising the exchanges estimate investors could reduce collateral-posting by €3 bn ($3.9 bn), a likely annual cost saving of roughly €300m.
“Nor would a merger necessarily mean increases in trading charges. The biggest investors are vital to the exchanges (the five largest NYSE clients make over 20% of total trades). These investors could move to non-European venues if charges rise, or they could set up their own platforms to deal with each other. And since costs of entry are not prohibitive, plenty of other established exchanges could be tempted into Europe if venues there started to look very profitable. The threats of switching or entry should keep prices to large investors competitive. And since regulators would take a dim view of any price discrimination, small investors should be protected from high charges, too.”
Eroding Spain’s national exchange
Several rival trading ventures, the latest being NYX, are offering price promotion on Spanish stocks. Bolsas y Mercados Espanoles (BME), Spain’s incumbent exchange, is the last of Europe’s large bourses to retain a near-monopoly in the trading of its national stocks, and the others are gaining momentum in efforts to break the stranglehold. Bats Chi-X Europe, the region’s largest alternative platform, has had an extended price promotion in the most-liquid Spanish stocks.
The success of the NYSE Arca Europe platform and others in Spain have been hindered by the failure of Spanish regulators and the BME to fully embrace the EU’s markets in financial instruments directive (Mifid – 2007), which allowed share trading to take place away from national stock exchanges. Mifid has boosted the rise of several alternative platforms and a dramatic fall in the share of trading conducted by markets including the LSE, NYX and DB.
November 3rd, 2011 by Tom Minney
Reuters newsagency has put together stories on issuers’ and investors’ difficulties with African stock markets. These include lack of liquidity and sinking currencies. It notes that African companies are increasingly dual listing on international stock exchanges.
“Liquidity: the scourge of African stock pickers” quotes a range of institutional investors complaining that liquidity is a major constraint on markets such as Malawi Stock Exchange. According to the article: “Poor but fast-growing, Malawi and other sub-Saharan African countries would offer huge opportunities to international equity investors – if it weren’t for the liquidity scourge. Markets across the continent are hampered by a lack of liquidity, making it nearly impossible to take stakes in all but the biggest firms. “With the exception of South Africa, we feel all sub-Saharan African (markets) are illiquid,” said Ronak Gadhia, Africa equities research analyst at London-based frontier markets specialist Exotix. “Most of our investors are unable to invest outside the big 2 markets, and even then their investable universe is usually the largest 5-10 stocks,” he said, referring to the Nigerian Stock Exchange and Kenya’s Nairobi Securities Exchange, the two biggest markets outside Johannesburg.
It notes that Sonatel, the giant of the BRVM West African regional securities exchange, is concerned about liquidity on that market and thinking about a secondary listing. An earlier story said the pressure comes from investors.
“Africa’s growing firms shun Jo’burg for London” suggests that even when companies are thinking about dual-listing, they head to the London Stock Exchange or AIM market and don’t consider Johannesburg. The article quotes Zambeef executive director Yusuf Koya: “It was a tough decision. A key factor in the decision process was London’s reputation as the world’s financial centre, which allows us to access a potentially wider range of investors and liquidity.”
According to the article: “A total of 104 African companies are listed on the London exchange, with the majority on AIM. The combined market value of African companies listed in London is now bigger than every African exchange except Johannesburg. Just under $2.1 billion was raised by African companies on the London bourse in 19 transactions in 2010, representing about 90 percent of all equity capital raised by Africa-focused companies in 2010, said Ibukun Adebayo, the LSE’s head of equity primary markets. Dual listings are critical for companies that outgrow their home exchanges, where thin liquidity keeps large investors out. Big bourses such as London and Johannesburg also boast tougher disclosure requirements, reassuring investors concerned about Africa’s corporate governance.”
It also cites bankers that London-based investors tend to have a bigger appetite for emerging market assets than their South African counterparts and quotes a private equity manager: “South African investors don’t understand Africa risk in the same way UK investors do.” It also suggests London may be an easier sell to international investors unfamiliar with Johannesburg. Nicky Newton-King, incoming CEO of South Africa’s JSE Ltd, says Johannesburg offers a world-class standard of disclosure for a lower price and less hassle than London: “You can come to the JSE, you can raise the money here, and your shares will be traded in a very liquid environment, a very respected environment. Without going through the costs and the hoops of listing in London, but with exactly the same standards.”
African investment institutions are just starting to rise, it could be a great time to heed the call from ASEA Chairman Sunil Benimadhu for African securities exchanges to find ways to get more liquid. SADC Stock Exchanges already have a workable model, but what will cause anyone to initiate the change to move onto the next level before many more firms move activity to London , New York or elsewhere?
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.”
June 3rd, 2011 by Tom Minney
I have the honour to be published on the opinions section of the Royal African Society website and the article can be seen along with their excellent blogs here. I also reprint the article, which is meant to spark debate, and I welcome your comments – is it time for change and what is the way forward?
“The wind of change” was Harold Macmillan’s famous 1960 phrase about Africans moving to political self-determination. Half a century later the world’s biggest securities exchanges are worrying who will survive a hurricane of globalization, technology and competition, but some of Africa’s capital markets still seem sheltered from the economic winds of change.
The giants of securities trading are slugging it out in a wave of mergers and acquisitions and London Stock Exchange (LSE) chief executive Xavier Rolet said: “In five years there will be three, four international exchange groups with global distribution capabilities”.
In the world of mega-bourses the LSE launched a £4.3 billion merger with Canada’s TMX Group of exchanges but a “Maple consortium” of Canadian financial institutions has launched a hostile bid, seeking to block the marriage. New York’s NYSE Euronext and Germany’s Deutsche Börse want a $9.5 bn union, but US stock exchange NASDAQ and its partner IntercontinentalExchange are offering $11.3 bn to snatch the New York bride. NASDAQ is reportedly worth $5.7 bn and worried it may become a takeover target if it stays single. Many other leading exchanges are busy with strategic transactions.
Africa however has not seen much change at least in the last decade. Some of Africa’s stock exchanges are making a few operational changes, but structural transformation is not on the agenda. The continent has a couple of world-class stock exchanges – in 2010 South Africa was rated the world’s best-regulated capital market – and three or four better exchanges with enough liquidity for international and big local institutional investors. The rest of the continent features a small regional exchange and more than 15 national stock exchanges where activity could drop to a few deals a day and liquidity is too small for the market to work efficiently or provide scope for minimum transactions for international investors. Some don’t even open their doors every working day.
Stock exchanges and securities markets evolved worldwide as the most efficient way to channel capital from savers to entrepreneurs, governments and others who can use it most productively, i.e. profitably. Savers with capital are more than eager to invest billions of dollars into Africa, dubbed the “final growth frontier” for its vast opportunities and favourable pricing. Meanwhile in Africa, entrepreneurs and governments are calling for billions in capital to build roads, rail, power, water and telecommunications/IT infrastructure up and down the continent and to transform farmlands, build industries and hopefully improve livelihoods sustainably through business.
Nationalist politics and comfort zones are among the factors holding back African securities exchanges, which have traditionally been seen as national institutions. Sovereignty has been more highly prized than liquidity and efficiency. In 2009 South Africa’s JSE Ltd sought to acquire a stake in the Stock Exchange of Mauritius (SEM) after two years of talks, but regulators blocked it. Nationalism about stock exchanges is not just an African concern, it is currently in the news in Canada and Australia.However, now technology is available to transform exchanges without losing national regulation or denting pride.
Some African exchanges are improving their own operations fast. The two NSEs – the Nigerian and Nairobi stock exchanges – have taken stern measures to improve governance, regulation and transparency. In Nigeria this included a morning in August 2010 with armed police on the Lagos trading floor after regulators fired the Director-General. Other exchanges such as Mauritius Stock Exchange (SEM) are noted for continuous improvements and innovation. However, only the Egyptian Exchange, the JSE (Johannesburg Stock Exchange) and SEM have attained the exalted membership of the World Federation of Exchanges.
In some countries trading in debt is improving faster than equity markets. Kenya’s NSE launched effective automated bond trading, backed by much improved settlement, and trading volumes and liquidity are soaring. The Government is responding with a deft series of issues that balance the domestic market and stretch it with long-dated 25- and 30-year bonds. Better maturity in the national fixed-income market enables lenders to offer locals long-term housing and other finance with paybacks over decades rather than a few years. Electricity company Kengen, telecoms operator Safaricom and others have raised hundreds of millions of dollars through bond issues, many aimed only at local savers. The overall effect on the economy is likely to be huge.
But change is coming slow to some African exchanges where liquidity is too small and action too slow. International investors complain that many don’t have enough trading to accommodate the minimum buy or sell amounts required and they lament the quality of market and business information and transparency. Coupled with the operational problems and uncertainties that dog local and international businessmen in many African countries, some are still “off the map” for investment.
London, New York and other international stock exchanges benefit if companies and bond issuers seek listings and cross-listings internationally in order to get closer to investors and sources of capital and because efficient marketplaces make their capital raisings more attractive to investors. London has a tradition as the world’s capital marketplace and the LSE’s Main Market lists 18 equities for trading that focus on Sub-Saharan Africa. In 1995 the exchange created the Alternative Investment Market (AIM) as an international marketplace for smaller, growing companies seeking growth capital, including early-stage and venture-capital, as well as more established companies. Sub-Saharan Africa scores 55 out of 3,000 listings, mostly mining firms, but also farming, finance and machinery.
NYSE Euronext Inc says trading in 16 African equities listed on its New York and European stock exchanges has boomed. Stefan Jekel, managing director for Europe, Middle East and Africa, says main activity stems from South Africa but interest in Africa is growing: “The volume (number of shares) traded has increased by factor of 12 over the last ten years to 7.9m shares, and the value is up by a factor of 21 times to $204m per day”.
London is to the fore when it comes to international Eurobond issues as African countries rush to issue sovereign debt and benefit while world interest rates are rock-bottom. Interest is also growing in African derivatives such as Exchange-Traded Funds (ETFs) available on London, New York and other international markets and one or two African markets. NYSE says the number doubled in 2009 to ten ETFs, six in Europe and four in New York, and they have over $1bn in assets.
It is an historic opportunity for Africa’s capital market structures. However much national exchanges improve, they need radical restructuring to create liquid and more efficient markets or they will be blown off the map by the winds of change.
Kwame Nkrumah (1909-1972) and many others transformed the continent driven by their vision of a mighty Africa that grew strong by unshackling the borders that colonial powers had drawn on maps. The African Union is founded to achieve regional and economic integration for Africa to take its rightful place in the world. Capital markets have an opportunity in that technology and proven models exist for African stock exchanges to pool trading while still maintaining national exchanges and regulation and being adaptable to meet local requirements.
Sunil Benimadhu, President of the African Securities Exchanges Association and CEO of SEM said in November 2010 that world investors see the continent as “a very promising investment destination with tremendous present and future growth potential”. African countries have achieved growth rates exceeding 5% in recent years after embracing fundamental structural reform programmes. The growth is set to continue but it must be fuelled with capital, skills and improvements in the investment and business climate.
African capital markets have an opportunity and a challenge.
Tom Minney is a consultant, speaker, financial journalist and editor of the blog www.africancapitalmarketsnews.com
May 31st, 2011 by Tom Minney
The London Stock Exchange (www.londonstockexchange.com) has long been a global centre for capital, particularly where African investments are concerned. It is also the world centre for Eurobonds and several leading African equities are traded in London. There are several reasons to come to London, either through listing or cross-listing, including being closer to investors and sources of capital such as funds and investment trusts and also because investors may find it more attractive to invest in companies that are listed on a well-known and recognized stock exchange. A few international exchanges, including London, Toronto and Australia, are also known as centres for world mining equities and attract specialized listings..
The LSE’s Main Market lists 18 equities for trading that focus on Sub-Saharan Africa. These are mostly South African firms covering food, industrials and mining and the history began with AECI in 1937 and Tongaat-Hulett in 1939. The main board also includes Zimbabwe’s hotel group Meikles, Hwange Colliery and financial services firm NMBZ; Kenya’s Kakuzi food products and Zambian miner ZCCM. All listings after NMBZ (1997) were incorporated outside Africa, including Channel Islands Jersey and Guernsey, Bermuda and UK. The list doesn’t include the “London Five” – Anglo American, BHP Billiton, SAB Miller, Old Mutual and Investec –of giant firms who caused controversy when they moved from South Africa. Africa is now a small part of their operations.
AIM, the LSE’s international market for smaller, growing companies, was created in 1995 for businesses seeking growth capital, including early-stage and venture-capital, as well as more established companies. Sub-Saharan Africa scores only 55 among the 3,000 worldwide companies. The list is dominated by mining companies, many incorporated in UK, offering investors exposure to gold, diamonds, gemstones, uranium, platinum, coal, iron and other metals and minerals spread across Africa from South Africa to Liberia and Sierra Leone. Also on offer are financial services, farming and fishing, water, computer services, real estate, industrial machinery and alternative fuels. Most of the countries of operation are English-speaking, but others include Mozambique and Somalia.
February 25th, 2011 by Tom Minney
The world is moving into fast consolidation of stock exchanges through mergers and acquisitions among the giant exchanges. London Stock Exchange chief executive Xavier Rolet said: “In five years there will be three, four international exchange groups with global distribution capabilities”, according to a report in London’s City AM newspaper (24 Feb).
African stock exchanges have not announced any changes to their style of operations.
The LSE is busy with a £4.3 billion merger with Canada’s TMX exchange. The Ontario Securities Commission chairman Howard Wetson said the regulator would review the value of the deal. In 2010 Canadian regulators blocked mining giant BHP Billiton’s $39 bn takeover bid for Potash Securities.
New York’s NYSE Euronext is planning a $9.5 bn merger with Germany’s Deutsche Boerse, which could face challenges on grounds of reducing competition. According to the report, Rolet said: “There’s going to be big competition issues because, between them, they control 93% of equity and index derivatives in Europe. It cannot be said that this is going to be anything but a monopoly.”
Also complicating the transaction is speculation that US stock exchange NASDAQ is contemplating a rival bid for NYSE Euronext. NASDAQ is valued at $5.7 bn and is worried that it may become a takeover target if it does not grow. The holding company of Chicago Board Options Exchange reportedly said on 23 February that it is open to “strategic transactions” such as a sale or merger with another operator of securities exchanges.
The Singapore Stock Exchange is merging with the Australian Stock Exchange as a growing share of world trading and capital-raising moves to Far Eastern and Chinese markets.
A few years ago South Africa’s JSE Ltd sought to acquire a stake in the Stock Exchange of Mauritius but this was blocked by regulators. Traditionally African leaders and regulators see them as national institutions, preferring sovereignty to liquidity and efficient capital markets. Structures have also been designed to link African exchanges without compromising these principles but these are awaiting funding.
January 25th, 2011 by Tom Minney
Singapore Exchange Ltd (www.sgx.com) is planning to install what it says will be the world’s fastest trading system, reports the Wall Street Journal. The move comes as competition gets hotter among Asian exchanges for a bigger share of large investment sums being sent East.
The $195 million SGX Reach project aims to bring Asia a fast electronic trading platform similar to those in Europe and US. The paper reports that lack of competition and regulatory barriers had prevented Asia exchanges following the race for speed dominance of the US and European exchanges.
SGX, which also clears all trades, says the new system will reduce costs for customers and enable them to trade fast, with response time of 90 microseconds and the capacity to handle 1 million changes to the order book every second. The London Stock Exchange Group PLC’s Turquoise platform is currently the fastest in the world and has an average response time of 126 ms, according to figures from the LSE.
SGX global strategy
SGX’s bold strategy to raise its global profile includes pursuing an $8.4 bn deal to acquire the Australian stock exchange ASX Ltd. This would give the combined exchange more commodity trading, an area where Hong Kong stock exchange has also expanded.
Magnus Böcker, SGX Chief Executive, said in a statement that SGX Reach “will help Singapore leap ahead of other global markets as a centre for international fund-raising and investment”. He was previously the President of NASDAQ OMX Group.
Last week (18 Jan) it announced that it would eliminate the 90-minute lunch period to give more trading time.
The same day Hutchison Whampoa Ltd made an initial public offer on SGX for its ports business which aims to raise up to $6 billion. China-based companies don’t often bring IPOs to Singapore.
Also that day SGX reported 14% rise in second quarter net profit, mostly due to more trading volumes from major companies capital raisings.
In October 2010 it got approval for a joint venture with Chi-X Global Inc to become a market operator for an Asian-Pacific alternative trading platform, or “dark pool” (see previous blog story), where managers can trade large blocks of shares anonymously.
Also in October, trading began in American depositary receipts (ADRs) of 19 major Asian companies.
Regional competitors
Hong Kong Exchanges & Clearing (www.hkex.com.hk) was the top market worldwide for IPOs in 2010, raising $53,2 bn, according to Dealogic, while SGX was 16th, raising $6 bn. HKEx is the leader in China-related IPOs and it is reported that a Japanese company is seeking to sell shares there for the first time, and Chinese companies are busy raising another $2 bn. It also plans to extend the current 4-hour trading session to 5 hours a day from March and to 5.5 hours a day from March 2012. It aims to increase trading capacity tenfold at the end of 2011 by technology to handle 30,000 orders per second (scaleable to 150,000 orders per second if necessary) with average order response time of 9 milliseconds.
Tokyo Stock Exchange (www.tse.or.jp/english) is considering extending trading time by cutting 30 minutes off the lunch break, with a decision expected by early February. It is in process of replacing its trading system and is combining its futures and options trading in a new platform that will cut trading time by a multiple of 10.