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West African stock markets talking integration – will they walk the talk?

West African stock exchange leaders are again talking about integrating the markets and are to form a West African Capital Market Integration Council. The exchanges in Ghana, Nigeria and Cote d’Ivoire have said they will seek to integrate by 2014. Latest arrival Sierra Leone is keen to join them.
John Tei-Kitcher, Acting Director General of the West African Monetary Institute (WAMI), opening a 2-day forum in Accra on 23-24 August, said that WAMI would provide leadershop for integration and act as facilitator on behalf of all stakeholders. Those attending were Ghana Stock Exchange, Nigerian Stock Exchange, Bourse Régionale des Valeurs Mobilières (BRVM) of Côte d’Ivoire, which joins eight countries, and Sierra Leone Stock Exchange.
According to a news report, he said: “Well-functioning capital markets are bound to accelerate economic growth and therefore alleviate poverty in the member countries. Deep liquidity and local capital markets can lessen vulnerability of the economies to external shocks by reducing currency and duration mismatches in raising funds.” He said the region’s capital markets are underdeveloped, as in many low-income countries, and could be an alternative source of financing, supplementing commercial banks, which dominate the financial sector in the West Africa Monetary Zone. Integration should be well-planned and coordinated, with short-, medium- and long-term goals spelled out. Steps would include governments removing exchange controls and eradicating or cutting withholding taxes to facilitate capital flows within the region.
He added: “Integration of the capital markets in the sub-region however has the potential to help countries overcome these constraints. If managed properly, integrated capital markets would allow savings to be pooled across the region. It will also lead to costs and information sharing among members, diversification of risks, and wider choices and innovation across financial institutions.” According to another report, Tei-Kitcher said markets should be linked up electronically to provide a single point of access and the private sector should be encouraged to develop new products.
However, Adu Anane Antwi, Director General of the Securities and Exchange Commission (SEC) of Ghana, reportedly told the workshop that over the last 15 years, many Memoranda of Understanding (MOUs) on integration have been signed among stock exchanges and regulatory authorities—without any action. He agreed that an integrated market would offer companies and even consumers more financing opportunities: “In segmented markets, the capital investment of firms in one country is limited to the savings provided by that country’s consumers, whereas integration allows for firms to access savings from other countries.”
According to Tei-Kitcher, integration talks began in 2006 and a technical committee was formed. This reportedly produced an interim report which has not yet been validated so that it can be implemented and there is no executive committee to drive the process.
Oscar Onyema, CEO of the NSE, believed global trends presented the most compelling necessity for West Africa’s exchanges to integrate. He said regulatory harmony and support from leaders and policy-makers were needed: “Since the private sectors in our countries are so small, governments must support the capital markets fully by creating the needed conducive environment for them to succeed.” He said competition would be maintained by the different exchanges which had different operations.
Kofi Yamoah, Managing Director of the GSE, said governments in the region do not use the market enough, state-owned enterprises and other large entities should be listed and use the exchanges to raise capital.

Nigerian Stock Exchange to roll out top-speed NASDAQ OMX trading platform

The Nigerian Stock Exchange says it will have the fastest trading system in Africa when it upgrades its trading to NASDAQ OMX Group’s X-Stream platform, with a target date of second quarter of 2013. The new system will handle a wide range of instruments, accounts will be accessible from smart-phones and it will enable the NSE to host other exchanges’ trading platforms.

Previously the NSE was automated with NASDAQ’s Horizon system. The new platform is part of the wider reforms being carried through by CEO Oscar Onyema, some of which were initiated by the previous interim administrator Emmanuel Ikazoboh. Reuters reports that reforms to the market include allowing covered short-selling and extending trading hours. The news agency reports that exchange officials said that the new trading system will build confidence in the market’s transparency and adds that analysts expect the market to end 2012 with gains.

The signing ceremony was held on 24 April, chaired by CEO Onyema and Adeolu Bajomo, (Executive Director, Market Operations and Technology) from the NSE, and for NASDAQ Sandy Frucher, Vice Chairman of The NASDAQ OMX Group and Lars Ottersgard, NASDAQ senior vice president and head of technology. The NSE and NASDAQ OMX have been working on designs since September 2010. Frucher said that the surveillance system has been integrated into the trading system while Ottersgard was reported as saying the latest edition of the X-stream technology matches orders in under 100 millionths of a second.

According to a report in This Day newspaper, Onyema described the new platform as high-performance, robust and scalable, multi-asset, multi-market matching trading engine: “The new trading platform will enable the NSE to have the fastest trading engine in Africa and investors, through their stockbrokers, will have real-time access to market prices, their portfolios and be enabled to execute market orders in near real-time from anywhere and on a wide range of devices including smart phones.”

Onyema noted that the new system would improve transparency and provide efficient price discovery in the market, among other benefits, stressing that investors in the market would benefit significantly from the system upgrade as it would afford them the opportunity to diversify their investment portfolio: “With this new system, equities, a fully functional bond market and exchange-traded funds (ETFs) will be accommodated in phase one of the project, while derivatives will be introduced in the second phase. The system will also enable the NSE to host other exchanges.” Several West African countries are discussing plans to open stock exchanges.

Bajomo said the process of selecting the system had been rigorous and that the NASDAQ OMX X-stream is used by 94 exchanges around the world. “We will work aggressively to go live with the Nasdaq platform by the second quarter of 2013, but this will depend largely on the preparedness of the other market operators.”

The price of the new platform is mostly quoted in the Nigerian press (for instance Daily Independent newspaper as US$2 million. A day earlier, This Day newspaper had put the cost at over $8.8m.


Other reforms: market makers, ETFs

Media reports (for example here) quote Onyema pointing to other reform targets, including a big rise in the number of listed companies, vibrant trading of those securities and a wider range of products: “As part of the strategic transformation of the exchange we set out last year to launch five products in five years and in December 2011, we launched the first exchange-traded fund in West Africa, the ABSA NewGold ETF. We are working on launching more products in the medium term and by 2013/2014, we plan to create an options market that will trade stock options, bond options and index options. This would be followed by a futures market in 2016 that will comprise currency futures and interest rate.”

On market liquidity, he said the exchange recently unveiled 10 market makers: “With this in place, we will soon start short selling and securities lending to further increase efficiency and liquidity in the market by making available securities where they are needed. These initiatives are a vital part of increasing the vibrancy, depth and competitiveness of the market. We have also put in place rules to allow companies to repurchase outstanding shares through a share buy-back process. This would facilitate the repurchase by a company of a portion of its outstanding issued shares. The aim is to improve shareholder value (ROA, ROE, EPS, P/E); meaning a companies that feel their share prices are undervalued may engage in share buy-back to shore up the prices while also reorganizing their capital structures.”

Reportedly the NSE aims for market capitalization of $1 trillion by 2015 and to be “the gateway to the African markets”. According to an earlier report in This Day newspaper the 10 stockbroking market makers were selected from a list of 20 applicants. They include: Stanbic IBTC, Renaissance Capital, Future View Securities, Vetiva Capital, ESS/Dunn Loren Merrifield, WSTC Financial Services, Capital Bancorp, FBN Securities, Greenwich Securities and CSL Stockbrokers. Onyema said: “The companies selected went through a very rigorous process and met the minimum net capital requirement of N570 million ($3.6m). We also examined their compliance history and looked into their operational capabilities, including their technology and processes.” He added the firms were trained, debated the appropriate market structure and the Securities and Exchange Commission approved the selection. The market makers used a draw to select a basket of quoted companies in which they would provide the desired level of liquidity.

CoSSE (Committee of SADC Stock Exchanges) launch new website for data and news

The Committee of SADC Stock Exchanges (CoSSE) has launched a website as part of a drive to create more liquidity in the southern African stock exchanges through better data and visibility for  the exchanges. The new website (www.cossesadc.org) was launched on 19 April.

CoSSE has 10 members: the exchanges of Botswana, Malawi, Mauritius, Mozambique, Namibia, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe. It was established in 1997 and is a collective and co-operative body of the various stock exchanges in the Southern African Development Community (SADC). It forms part of SADC structures as it has a formal status under the SADC Finance and Investment Protocol (FIP). The objectives are:

  • To improve the operational, regulatory and technical requirement underpinnings and capabilities of SADC exchanges
  • To make the securities markets of SADC exchanges more attractive to both regional and international investors
  • To increase market liquidity and enhance trading in various securities and financial instruments
  • To promote the development of efficient, fair and transparent securities markets within the SADC region
  • To encourage the transfer of securities markets’ intellectual capital and technical expertise among the member countries of CoSSE
  • To encourage interaction among market participants
  • To encourage the development of a harmonised securities market environment within the SADC region
  • To maximise co-operation among CoSSE members.

The new website is hosted and maintained by a leading South African data vendor I-Net Bridge.  The company has been extending its footprint into Africa to provide investors with accurate, timely and reliable African financial data. Where it is available, the firm provides information from over 18 African countries, including equity and index data from the exchanges, a range of African economic time series, annual company financial statements and company news through their various professional and corporate-solutions products. Stephen Phillips of I-NET Bridge says: “It is I-Net Bridge’s goal to become the preferred supplier of African content globally and assist in generating interest and liquidity to all African exchanges”.

The new chair of CoSSE is Beatrice Nkanza, chair of the Lusaka Stock Exchange, taking over after the term of Emmanuel Munyukwi, CEO of the Zimbabwe bourse. Gabriel Kitua, CEO of the Dar es Salaam SE, was elected vice-chair. The meeting, held at the JSE Ltd in Johannesburg, also discussed business plans for regional cooperation.

Happy New Year 2012

We thank all our readers for your support and comments during the past years, we are very encouraged by the great interest shown in this blog through emails and advertising inquiries as well as people we meet at capital markets events.
We wish all our readers a very happy, fulfilling and prosperous 2012. We would wish peace, but it does not seem likely, but we do wish you fun and the ability to fulfil your dreams.
Best wishes for 2012

African Securities Exchanges Association (ASEA) conference to launch

Excitement building in Marrakech,Morocco, ahead of the formal opening tomorrow of the 15th annual African Securities Exchanges Association conference. The theme is “Africa, alive with opportunities!” and the host is the Casablanca Stock Exchange.
I spent a great afternoon wandering in the Kasbah and the Medina!
Top speakers include Salaheddine Mezouar (Morocco Minister of Economy and Finance), Sunil Benimadhu (of the Stock Exchange of Mauritius and chair of ASEA), Aomar Yodar of the Casablanca SE and Andrew Ross Sorkin guest columnist of the New York Times. Expect speeches from, Karim Hajji of the Casablanca bourse, leaders of African and top speakers from several world securities exchanges. Also there will be finance ministers, bankers, analysts, traders, investors and many more.
Topics on day 1 include
• “The financial crisis: Is there a pilot in the plane?” with Oxford Analytica, and African and UK expertsrom the heart of the crisis
• Capital markets and the developments of BRICS (see previous story on stock exchange link-ups) – hear from CEOs and Executive Directors of key BRICS and Istanbul stock exchanges and Emergent Asset Management and Epoch Fund
• The economic implications of the “Arab Spring” for the continent: Top analysts, strategist and others.
• Casablanca Finance City with the CEO of the Moroccan Financial Board.
• Nursing Africa’s future IPOs: heads of top African stock exchanges Karim Hajji of Casablanca SE, Ekow Afedzie of Ghana SE and Sunil from Mauritius as well as speakers from Morocco and France.
• A new FTSE-ASEA African index.
Day 2 covers
• Regulation for cross-border development, moderated by your author, with top experts from France, Euroclear, Cosumaf and Morocco
• Cost-effective and scalable technology options for emerging markets exchanges – featuring Tony Weeresinghe of the LSE, Sandy Frucher of NASDAQ OMX and maybe Josef Dobrawez of Thomson Reuters.
• What’s hot in Africa today? is the wrap-up with a host of top speakers from politics, consulting, banking, mining, economics and development finance covering energy, infrastructure, mining, industry, agribusiness and others.

Sierra Leone to be world’s fastest growing economy in 2012? (50% GDP growth forecast)

Sierra Leone could be the fastest-growing economy in the world in 2012, according to a story on Bloomberg’s Businessweek, citing Finance Minister Samura Kamara. He told parliament on 25 November that growth will be 50% because of new iron ore mines coming on stream, and 10% in 2013 and in 2014.
African Minerals Ltd. started shipping iron ore from Tonkolili iron-ore mine 4 Nov. and London Mining Plc, is to start in Dec. Growth excluding iron ore would be 6%.
Sierra Leone has been seeking to attract foreign investment. It need to rebuild an economy destroyed almost completely by 11 years of civil war, which ended in 2002.
Kamara reportedly said the budget deficit (excluding grants) will be 10.4 % of gross domestic product (GDP) in 2012 from 11.8% in 2011. The 2011 gap is forecast at 3.9%, excluding grants. Revenue from mining licenses and royalties will increase to SLL242.3 billion (the currency is called “leones” and this is equivalent to about $55 million) in 2012, up 30% and higher exports will help narrow the country’s current-account deficit to 11.2 % in 2012.
Inflation slowed to 15.7% in September and in October, the Bank of Sierra Leone cut 300 basis points (3 percentage points) from its key lending rate, lowering it to 20 %. Inflation is forecast to fall to 11% in 2012 and “single digits” in 2013 and 2014. Spending will include
The country will spend SLL395 bn on road construction, SLL206 bn on energy and water and SLL 6.3 bn for the rehabilitation of the main airport at Lungi, outside Freetown. Donors are contributing to infrastructure development.
Giant iron ore mines have also started earlier this year in Liberia.

Caravan Capital plans $90m into African equities

Caravan Capital Management (www.caravancap.com), an investment fund based in the USA, aims to invest up to $90 million in African equity frontier markets. The fund has invested in 36 countries considered as frontier markets.
Chief Investment Officer Cliff Quisenberry told Bloomberg yesterday (25 Oct): “We expect to increase the share of frontier African equities to 30% of our portfolio in 2 years from a current 23%. The investment would reach $90 mn in 7 years when the fund reaches its capacity limit.”
Caravan Capital already holds investments in Zambia, Ghana, Malawi, Kenya, Burkina Faso, Senegal, Tanzania and Nigeria. It is exploring possible investments in Ivory Coast and North African countries. Quisenberry says of frontier markets: “These stocks offer the most returns on investment. Illiquidity is a challenge. They are tomorrow’s emerging markets”
He was speaking at a Society of Financial Analysts of Mauritius conference.

BRICS stock exchanges form alliance

The securities exchanges of the “BRICS” emerging market bloc have announced a joint initiative to expose investors to the dynamic economies of the bloc members, Brazil, Russia, India, China and South Africa. China and India are among the fastest-growing major economies over the next five years, according to forecasts, and all are increasingly attractive to investors worried about stagnation on US, European and other major exchanges. The initiative was announced on 12 October, during the 51st AGM of the World Federation of Exchanges (WFE), held in Johannesburg.
The stock exchanges will start by cross-listing benchmark equity index derivatives on the boards of each of the other alliance members. Following that, the alliance will develop innovative products to track the BRICS exchanges.
This brings together Brazil’s BM&F BOVESPA stock exchange, MICEX from Russia (currently merging with RTS Exchange), Hong Kong Exchanges and Clearing Limited (HKEx) as the initial representative of China, and South Africa’s JSE Ltd (the Johannesburg Stock Exchange). The National Stock Exchange of India (NSE) and the BSE Ltd (formerly known as Bombay Stock Exchange) have signed letters of support and will join the alliance after finalizing outstanding requirements.
The seven stock exchanges represent a combined listed market capitalization of US$ 9.02 trillion (source WFE and RTS website) with listed 9,481 companies2, equity-market trading value of US$ 422 billion per month and over 18% of all exchange-listed derivative contracts traded by volume worldwide (source Futures Industry Association) as of June 2011.
Ronald Arculli, chairman of HKEx and of the WFE, says in a press statement: “Global investors are increasingly seeking exposure to leading developing markets. The close relationship of the BRICS stock exchanges is behind this initiative, through which investors worldwide will gain easier access to benchmark equity index derivatives, which will now be offered in local currency on these exchanges. These cross-listings are planned to take place by June 2012.”
He adds that this is an important moment in the history of developing countries: “The alliance enables more investors to gain exposure to the BRICS bloc of emerging economies, with its increasing economic power. From a global perspective this alliance points to the growing relevance of the BRICS economies and financial markets in the coming decade and further underlines the reason for the BRICS relationship.”
Russell Loubser, CEO of the JSE, says: “As well as being barometers of market performance, indices also form the basis of other tradeable products, including exchange-traded funds. As a logical second phase in the alliance, the exchanges have agreed to work together to develop new products for cross-listing on the respective exchanges.” These products would combine exposures to equity indices of all alliance partner exchanges. Edemir Pinto, CEO of BM&F BOVESPA, explains: “These products would then be cross-listed and traded in local currencies. They will also allow investors to gain exposure to other emerging markets through a locally listed product.”
A third phase may include product development and cooperation in additional asset classes and services.
Madhu Kannan, CEO of BSE Ltd, says: “The BRICS exchanges alliance holds great promise, as it will create avenues for Indian investors to diversify and expand into other emerging markets. It will also provide unique opportunities to investors in other BRICS nations to participate and contribute in India’s growth. BSE will actively work towards bringing world-class products to India as well as developing new products for other BRICS markets.”
Investors worldwide and those whose homes are in the BRICS economies are increasingly interested in investing in high growth emerging economies. Most of the BRICS countries are predicted to have above-average economic growth. They are going through shifts in that there is rising consumer power generated by a growing middle classes in each, which will accelerate demand.

Posts intermittent until 29 Jan

Sorry, I am travelling in Ethiopia until 29 January with very limited access to Internet, so stories are a bit more sporadic until then.

$55 bn of private capital flows to Africa in 2010

According to a top economist of the World Bank, a total of $55 billion of private capital is estimated to be flowing into Africa this year, reports newsagency Reuters. No figures are given for 2008 and 2009, but the flows in 2007 were $49 bn.
Shanta Devarajan, the World Bank’s chief economist for Africa, told Reuters in an interview: “We are seeing private capital flow back into Africa after the recession.. The fact that African policymakers responded with prudent policies during the crisis means that the policy environment in Africa has never been better, the productivity of external resources in Africa has never been higher.” There was praise for maintaining prudent macroeconomic principles and public investment.
“There are risks in Africa, nobody is denying those, but look at the rate of return to investment in Africa, it’s the highest in the world.” The World Bank estimates Africa needs $31 billion a year for the next 10 years, just to get its infrastructure up to the level of the island nation of Mauritius.
The World Bank projects growth of 4.5% for 2010 and 5.1% for 2011, fuelled by good agricultural performance and public investment. Devarajan said: “Agriculture has been good in several countries, but also some of the investments that countries made in the past are beginning to bear fruit. During the crisis, countries did not neglect investment.” He added that Africa was poised to embark on two decades of economic growth of the kind that India in the last 20 years.
Major development challenges include youth unemployment, a huge lack of infrastructure and bad leadership. There are 200 million young Africans and 7-10 million of them join the labour force annually, mainly in the informal sector, Devarajan told Reuters.
Inflows also come from remittances, debt relief and aid. The Bank says that remittances sent home by Africans living abroad are forecast to grow by almost 2% in 2010 from $21 billion previously. In some cases, local currencies will appreciate as a result of the inflows, but that could be managed so the real exchange rate does not strengthen too much, said Devarajan.
He added that inflation in the mid-2000s was half its previous level – in 1993, 23 countries had inflation over 20%, but by 2007 only 2 did.