The Allure of NSE Growth Despite Electioneering Politics

20-share Index
It is noteworhty that the Nairobi Stock Exchange (NSE) came from an earlier 10% plunge this year to exploit one of its most prosperous years of the decade with the 20-Share Index, rising to above 6,000 points at one point.The phenomenal growth of the 20-share index, a reflection of the investors' growing wealth, is expected to continue into the New Year as the capital and financial markets shed fears of political uncertainty, expected to end with the December 27 presidential polls.

New Listings
This year's stock market trade was continually dominated by the events of 2006, which saw the successful listing of the Kenya Electricity Generating Company (KENGEN). This warmed the once dormant market and brought in 250,000 first-time investors.The NSE owes its milestones this year to the increased market confidence, exemplified by the coming to the market of family-owned businesses. The listing of the Scangroup, a multiparty marketing, advertising and research firm and Access Kenya, enabled the NSE to diversify its source of income and grow its market capitalization to new heights, with the later becoming the first ICT company on the bourse.

Panic Selling
The market took a mid-year beating from political activity this year with the 20-Share Index plunging by 9.24% due to panic selling of shares, mainly by the first-time investors who did not understand the meaning of market correctional activities.The June market plunge initially seemed to be a bad precedent but it came as a blessing in disguise as foreign fund managers, who had exited the market in the mid-1990s, and had been watching the market from the sidelines, came back rushing to buy the shares.

Collapsed Stock Broker Replaced
Investors panicked after the market regulator took action against Francis and Thuo Partners, one of the oldest stockbrokers, which was found to violate trading rules by using investors' funds without consent.Mr. Francis Thuo was replaced by Renaissance Capital, which purchased the seat at Ksh420 million. The money was used to partly pay off investors who had lost money with the collapse of the rogue investment firm. The NSE paid up over Ksh.200 million.

Investor Numbers
The number of investors at the NSE rose to historical levels this year to hit 750,000 compared to the 80,000 investors who traded at the NSE in 2003. The NSE, however, estimates that only 100,000 shareholders trade actively. NSE still faces stiff challenges, especially on investor education, a portfolio which falls with the market regulator, the Capital Markets Authority (CMA). The NSE reached its decision to sell the vacant seat to the Russia-registered Renaissance Capital in a bid to deepen the capital market in Kenya, by bringing in foreign capital.

Renaissance Capital and Morgan Stanley
RenCap ecured a stockbrokerage license from the CMA, allowing it to enter the growing market in Kenya, while one of the world's greatest investment banks, Morgan Stanley, also gained entry into the Kenyan market, thanks to the pending Safaricom listing.
Morgan Stanley partnered with Dyer and Blair Investment Bank to win the coveted bid for transaction advisor for the Safaricom Initial Public Offer (IPO), which is expected to be the next big bang in Kenya's capital market.The mega deals which dominated the NSE in 2006 trickled over into 2007, constantly putting bourse on a steady growth path and shaping the market activity.

Kenya Reinsurance
State re-insurer, Kenya Reinsurance Corporation, statutorily allowed a 30% share in any insurance deal in the market, also came to the market this year, bringing on board a hoard of fresh investors, both local and foreign, who came to profit from the June meltdown.

Market Capitalization
This year, market capitalization increased to historical levels, from Ksh112.5 billion in 2002 to Ksh732 billion in mid 2007 before peaking at close to Ksh800 billion in December.
The 20-Share Index has also stabilized at an average of 5,500 although it breached the 6,000 mark within the year before taking a deep plunge due to political volatility. The growth of the share index from 1, 364.85 in 2002. The index stood at 5,332.03 as of 11 Dec.
The share index shed nearly 600 points in October this year, closing the second week of the month at 5005.89 points compared to a high of 5611 points in early September.

Scangroup, Equity, PTA and Barclays
The listing of 69 million Scangroup shares, the Equity Bank placement in the market's main investment segment, the listing of the PTA Ksh1 billion bond, the listing of Barclay's three-year corporate bond of Ksh5 billion, played as major movers of business.

Banks Profitability
Stock market analysts say the first six months of the year was dictated by the high after tax profits posted by the listed commercial banks increased.

Parting Shot
The new year portends new growth heights for the NSE as foreign investors flock into the Kenyan market after a decade of shying away. This is a clear indication that Kenya as an emerging market is going places.

Don't be left out!!!!

Banks Analyst at its Best

By the way many have already met bankelele either physically or through his avid analysis and many have become members of his blog. Each day he continues churning surprsising pieces of analysis on various topical business issues and sometimes a dose of the pilitic-business.

Among his latest works is an analysis of the banking sector.

Read more of (part1) here and (part 2) here.

Hats of Banks for analyzing our banks!!!!!

The Changing Faces of Banks in 2007

Radical changes
The banking sector has come a long way and with mergers and acquisitions in the offing as well as the emergence of near financial supermarkets the future is indeed bright for our banks.

Investors
Most investors in banks stocks have often made a kill over the last few years with splits, dividends, bonuses and price appreciations having been witnessed.

New products
The banking sector is indeed undergoing radical changes and new products are being unveiled everyday target the larger populace as oppossed to the big-mans-bank syndrome that had been evident a few years ago. Banks are now literally going to the streets to hawk their wares and sell the loans to every would be buyer with little or no requirements at all.

Interest rates and competition
Interest rates have dropped drastically as banks strive to offer cheap products to borrowers for their businesses and other needs.Competition in the banking industry is indeed evident and every new day new banks are emerging.

New Banks
Most non deposit taking institutions are now converting into microfinances and finally banks in a matter of years and the number of banks is increasing by the day.

Banking stocks
The banking stocks have continued to soar to new record highs never witnessed before as investors both local and foreign rally to buy them.

Cross border trading
These banks have even dared to cross border to other regions talk of KCB in Uganda and southern Sudan where it continues to serve its customers. Others are savouring the region for strategic partners to inject new blood inform of liquidity into the system talk of Equity and Helios deal as well as Stanbic and CFC deal.

Stock broking
Other banks are craving for a piece of the stock market pie with ventures into stockbroking. NIC failed bid for the stake of the collapsed Francis Thuo (won by renaissance capital) has seen it partner with another securities dealer. Talk about slowly getting their.

Asset Finance
Asset finance is becoming the talk of town with considerably lower interest rates charged by banks for the same. This was started by NIC bank but now adopted by NBK, KCB, Equity, Family Bank, Stanbic and the list is growing.

...and the changes go on...

Of Investment Groups and Target Products

Investment Club
Now that it is evident that over the recent past, the number of investment clubs also called investment groups has grown phenomenally. An investment club is a group of individuals who meet on a regular basis for the purpose of investing money.

Contribution
The invested sums can be as little as $10 a month. The first investment club on record dates back to the 1800s in Western America. Various online communities devoted to this type of investing have recently emerged and have contributed to the personal investing boom in the United States. One of the reasons that people come together in investment clubs is to learn how to invest. While investment clubs are commonly organized with members contributing money and investing as a group in a single club portfolio, members of other self directed Investment clubs simply meet and learn about investing but invest on their own. With the advent of computers and the internet investment clubs have also moved into cyberspace.
Investment clubs are generally formed as general partnerships, but could also be formed as limited liability companies or limited liability partnerships (in states that allow them). more on wikipedia

Membership
Joining one has become almost the norm. An investment club is typically a group of family, friends or co-workers who have teamed up together to pool funds and invest them collectively in assets such as the stock market and real estate.For an investment group to work, it is important for you to look for like minded individuals who are committed and intent on going to the next level. Look for people who want to share research and knowledge about the market. Look for people who are pursuing different careers from your own so that you can have a mix of ideas. more on businessdaily.

New Products
Equity Bank, Britak and Housing Finance have launched a product targeting these investment groupds dubbed Hekima Milele that ius set to radically change the way investment groups have been doing their business. Talk about a financial supermarket and its new products!

Tips
Some useful tips on starting and running a successful investment club are available. Smaple this:
-How to start a club i.e starting and running profitable investment clubs.
-Learning from the wonderful world of proshare investment clubs.
-Endeavoring to undertake better-investing.
-Australian stock exchange tips on investment clubs.

2007: My Twelve Reflections

As the year draws to a close with the upcoming general elections many especially in the business cycles are taking stock of their ups and downs during the year.

1. The stock market during the early part of the year was abuzz and on a crazy upswing mode and many investors did make a kill.
2. New entrants into the stock market exclusive leage-Renaissance capital is already making inroads into the equity market with plans to invest more in stocks come the next years.
3. New IPOs slated for the year were realized but the mother of all IPOs is still being awaited and investors are bracing themselves for a bruising battle come the release. Despite the dragging court cases the governement is still determined to sell this cashcow and seal the deficit hole in thw budget that is over Kshs100B.
4. The shilling realized significant gains and is now on new highs with strong inflows from:
-Shs 26B purchase of 51% stake in Telkom Kenya.
-Transcentury continues to spur investment area with its new ideas from the spindoctors therein. It is now selling its shares to the strategic investor.
-The prospects of the dollar on the global front is dwindling
-Foreign investors flock to the NSE to get a stake in some of the blue chips and Kenya is the new emerging market where foreign investors are diverting their investments.
5. Equity continues to surprise us despite fears of imminent collapse with new profitability feats and innovative product and now the sale of 24.9% stake to Helios-a strategic partner. What more can we say it is going from strenngth to strength and their stocks might be worth your pennies...
6. The banking sector was abuzz with profitability and more is yer to come.These stocks are good buys dont you think?
7. The emergence of the pyramid schemes that fleeced many investors their hard earned monies and left many crying remember Deci, CLIP, Sasanet and many others?
8.Many investors woke up to the realization of the stock market as an investment destination.
10. Tourism earnings and prospects are good and the earnings from this sector are set to rise exponentially come the next year.
11. The economy grew by over 6% and whether this translated to more money in our pockets is subject to discussion.
12. Business Process outsourcing (BPO) the new craze in town for kenya as an emerging market and this is expected steer our country to the leagues of India and other fast growing economies.

more to come.......

Implications of Strengthening Kenya Shilling

Kenya Shilling
The Kenya Shilling has been on an upward trend in recent past and this is attributed to the entry of foreign investors into the market that has rallied the Kenyan shilling to new highs.

New Highs
Yesterday, the shilling settled at one of its strongest positions to the dollar at a mean rate of Sh65.40, the strongest level since 1999.

Causes
The strengthening of the local currency against the US dollar was steered by increased foreign exchange inflows amid subdued demand from:
1.Foreign Investors rallying to invest at the NSE including top Wallstreet operatives.
2. Offer by Helios, an international investor, last week by buying a 24.99 per cent stake in Equity Bank worth over Sh11 billion.
3. This was followed by news that France Telecom would acquire a 51 per cent controlling stake of Telkom Kenya worth Sh26 billion.
4. Increased demand for the shilling from exporters to meet end month demands.
5. Increased tourist reception into the country with projections likely to go higher with the festive season approaching despite the impending electioneering period.
6. Strategic positioning by various players before the anticipated upcoming Safaricom IPO.
7.Other variables

Players in the forex market include:
-Interbanks
-Commercial companies
-Central Banks
-Hedge funds
-Retail and forex brokers
-Investment management companies

Effects
1. Exporters will face challenges of penetrating foreign markets as exports become expensive
2. There will be a significant reductions in local revenue terms for exporters.
3. Kenya will become expensive to trade with.
4. Net foreign exchange earnings will go down.

Financial Market Engineering in Kenya

Tremendous changes are occurring in financial markets and trading organizations as a result of technology developments. These advances in IT have created significant opportunities for;
1. Economies of scale,
2. Reduced transaction costs, and
3. Enhanced trading liquidity.
New market systems also create major risks for exchanges and their operators stemming as a result of competitive forces unleashed by open, global markets and real-time access.

Engineering questions to address for each of these three areas are:
1. Microstructure – What auction or other negotiation protocol serves in the interest of participants? Which protocols are innovative and applicable?
2. Infrastructure – How can the market protocols be implemented in a decentralized, highly scalable IT architecture? What technologies should be used? Which capacity and functionality demands have the highest priority?
3. Business governance structure – Who controls the market as an organization, and enhances its financial performance? What are the promising revenue models? Which services should be offered to whom at what price?

Since the outcomes from configuring these three dimensions today are still imperfectly understood, designing markets remains a challenging task. The approach of market engineering proposes that the design of electronic markets be approached holistically. Holistically means that all areas of the design – the microstructure, the infrastructure as well as the business structure – are simultaneously considered. The configuration of these different dimensions of a market is
guided by a structured engineering process.

As we strive to enhance the performance of our financial markets, it is imperative that we consider:

-Best Execution – What do we want from our markets?
-Innovative Products, Trading Mechanisms, and Services for Electronic Markets;
-Performance of market platforms;
-Auction and matching techniques;
- Models, methods, and tools for financial market
engineering; and
-Integrating mechanisms for multiple market modalities.

Growing our emerging market is challenging but realizable. Lets build our financial markets to status of the top dogs!!!

Trancentury Going Public?

Just read a post by ribacapital on Transcentury that it is undertaking a private placement for 4,213,500 shares representing 17.7% of the company at a price of Ksh.712.00 per share.

More by ribacapital...

The Rise of Freeconomics

Now that our political arena is awash with news, informations and inundations on the the boys in blue and orange many are left dazzled.
As the day draws closer, many free-economists are churning various theories of the free things we are likely to enjoy come the general election.
Free...
Sample this:
-Free food for the needy
-Free primary and secondary education
-Free clothing for those without
-Free transport vouchers for the poor
-Free ports
-Free country
and the list goes on and on...

Well i am not alluding to any political inclination, but i am disturbed by the freeconomics being churned out in the bid to lure the electorate at the expense of real issues that bedevil our economy and investors at large.

Sample this from Moore's Law
"What happens when things get (nearly) free?" His answer is that you waste them,You use them profligately, extravagantly, irresponsibly. You shift out of conservation mode and get into exploitation mode. You do crazy things ...like promising the average email user that they'll never have to delete another message to conserve space. We will all learn how to waste newly abundant resources, retraining our minds to ignore our instincts about costs and scarcity.

Just a thought!!!!

Financial Sector Deepening Panacea for Emerging Markets

Financial deepening
This refers to the increased provision of financial services with a wider choice of services geared to all levels of society.It also refers to the macro effects of financial deepening on the larger economy. More financial deepening generally means an increased money supply. The more liquid money is available in an economy, the more opportunities exist for continued growth.
It can also play an important role in reducing risk and vulnerability for disadvantaged groups, and increasing the ability of individuals and households to access basic services like health and education, thus having a more direct impact on poverty reduction.

Financial Markets
In economics a financial market is a mechanism that allows people to easily buy and sell financial securities (such as stocks and bonds), commodities (such as precious metals or agricultural goods), and other items of value at low transaction costs and at prices that reflect the efficient market hypothesis. Financial markets have evolved significantly over several hundred years and are undergoing constant innovation to improve liquidity.

Growing Interest in financial deepening
There has been a growing interest, around the developing world and economies in transition, in the promotion of rural financial deepening. The hope of better risk sharing, more efficient allocation of capital, more productive investment, and, ultimately, higher standards of living for all is propelling the drive for stronger connections between financial systems across the world.
Moreover, attention has gradually shifted, from the earlier exclusive emphasis on credit,
towards a growing recognition of the importance of different types of financial services,
including:
-Deposit facilities and similar means to accumulate liquid reserves and hold
stores of value.
-Payments instruments and opportunities to send and receive remittances
and to exchange currencies and
-Mechanisms to manage liquidity and cope teh risks.

Asian economies, particularly emerging markets, are taking an active part in this quest, at both the regional and global levels. At the global level, Asia's integration with the international financial system is well advanced.

Financial Integration
In the years since the 1997–98 financial crisis, Asian governments have affirmed their intention to promote financial integration at the regional level with a view to both reducing vulnerabilities and improving the allocation of savings. A series of initiatives have been launched to boost regional self-sufficiency, ranging from information sharing to financing arrangements in foreign exchange. Governments are also taking steps to deepen regional bond markets to reduce reliance on bank financing and to shelter the regional economy from the possible repercussions of future volatile capital flows originating elsewhere in the world.

Financial Sector Deepening in Kenya
The Financial Sector Deepening (FSD) Trust was established in early 2005 to support the development of financial markets in Kenya as a means to stimulate wealth creation and reduce poverty.more

Safaricom Hullabaloo

Now that Safaricom is striking the headlines every new day it goes without saying that this company has higher stakes and every investor worth his salt craves for a piece of its juicy cake.
Nonetheless, there have been contradictory information coming out from several quarters with the government determined to ensure its budget deficit is reduced with the proceeds from privatization programs.
Safaricom is expected to rake in 34B. Some however have hinted that the IPO will take place between 1st and 14 December so as to allow investors time to vote during the 27th December General Elections.
Everyone is watching and despite the recent court case by some ODM members the government's determination is unrelentless.

Kenya Capital: TPS Stock to Watch in 2008

With his avid analysis over time now MjengaKenya thinks that TPS is a stock to watch in 2008.
Given the trend that tourism in Kenya is expected to take with expectations of increased tourist in the next 5 years, this will translate to increased revenue for this company that has spread its tentacles accross east africa. TPS is well positioned to rake in higher returns and better stock prices.

Check out my earlier analysis on this company set to benefit from tourism upswing.

The Hot Seat that is Safaricom CEO

Being the CEO of Kenya'a most profitable company is no mean feat and many corporate CEO's are now envious of their unparalleled achievements and would wish to occupy this higher pedestal.

Safaricom's CEO

Michael Joseph has been at the helm of Safaricom since inception and with his contract coming to an end in the first quarter of 2008, picking the CEO of Kenya’s most valuable and successful company would appear as a big political concession that any regime would like to lose.

Succession Plan

Mr Joseph has been an asset to the firm, which has not put in place a well thought out and well publicized succession plan. The risk of losing a successful manager at a time when the company is preparing to go public would have made investors skittish. more

Syndicated Loans

Safaricom owes a syndicate of banks Sh12 billion and with the fast growth that the company is experiencing, it still needs the ability to tap both the equity and debt market for cash.

IPO

Treasury is seeking to sell 25 per cent of its 60 per cent stake in Safaricom to the public through the NSE in a transaction expected to net at least Sh34 billion and billed as the largest sale ever in the Kenyan capital market.

Telkom Kenya

Already, a number of investor including British Telkom, France Telkom and South Africa Telkom have lined up to purchase a 51 per cent stake Telkom Kenya in deal worth Sh5.6 billion. The stake is set to be transferred to the winning bidder on November 26th.

Foreign Investors Back with a Bang

Foreigners Flock NSE
Despite the recent jitters about the stock market that saw various politicians make remarks about the stock market, indications are ripe that foreign investors are not shying away from the Nairobi Stock Exchange.
Infact over the last few weeks insiders have it that foreign investors are now flocking the NSE. Their deals in some days have accounted for more than 40 per cent of the trades in a number of counters.

Blue Chips
It appears that the target of this investors are blue chips including, East African Breweries Limited (EABL), Kenya Airways (KQ), Barclays Bank (BBK), Kenya Commercial Bank (KCB), Mumias Sugar Company (MSC), Kenya Electricity Generating Company (Kengen) and recent debutant to the NSE Kenya Reinsurance (Kenya Re) amongst others.

Economic Fundamentals
It is noteworthy therefore that the re-entry of foreign investors into the local equity market is a clear indicator of the strong perception of the country’s economic fundamentals and favourable corporate earnings projections in the country despite the impending elections that has been expected to send these investors packing due to uncertainty of the election outcomes.

Political Comments
The recent reassurance by some presidential candidates on their support for the goings-on at the NSE against a backdrop of earlier negative comments on the sam market is welcome and is a positive signal to more foreign investors as well as local investors to flock the NSE in preparation for the Safaricom IPO.

Safaricom IPO
There are strong indications that various players across the global divide (From Wallstreet to Kimathi Street) are positioning themselves to invest in this most profitable company that raked in 17B profir last year and expected to beat such feats given its current products that have been positively received by customers including MPESA service. Their expansion programs are also welcome and it is a matter of time before we proudly own THE BETTER OPTION.

NSE Amidst Electioneering Frenzy

Kenya is one of the few countries in the world that has the uncanny knack of being gripped by election fever from one election through to the next national polls due to politicking amogst its leaders.

Big Investors
Traditionally the big-time investors take a wait-and-see stance during an election year and the result is sluggish economic activity, which could result in slower GDP growth. On the Nairobi Stock Exchange, which is a barometer of economic performance in the country, share prices nosedive.

Political Uncertainty
Kenya’s equity markets could face their hardest test in four years amid heightened volatility caused by political uncertainty ahead of the general election. Massive offloading of shares by individual investors in anticipation of the Safaricom Initial Public Offering could also spark market fluctuations and depress market activity.more
Already, the market is showing signs of a slow down with the benchmark

NSE Index
NSE 20Share index that tracks the performance of the 20 select listed companies, threatening to dip below the 5000 point mark.In the last one month, the NSE 20 Share index has shed an estimated 600 points, closing last week’s session at 5005.89 points compared to a high of 5611 points in early September.

Election Frenzy
The looming general election in Kenya cannot escape investors’ minds. As much as they wish to celebrate a new beginning and the anticipated Safaricom IPO, at the back of every investors mind is a dark cloud of uncertainty as to what the election frenzy will bring to the bourse.

SME Listings at East African Bourses

SMEs
Small and Medium Enterprises play a vital role in any emerging economy. In Kenya the emergence of microfinance banking has catapulted the growth of SMEs.

East African Exchanges
NSE, DSE and USE collectively the East AfricanExchanges have plans to allow the listing of SMEs through relaxation of the stringent listing requirements that characterise these marts. The tough floatation rules have hindered most SMEs from floation their shares through IPOs.

SME Listings
The listing of small and medium-sized enterprises (SME) is expected to provide more shares at the market, allowing investors to diversify their investments and help spread liquidity, which has at times distorted the valuation of some shares.The development, which will also be replicated by Kampala and Dar-es-Salaam bourses, will catapult the region into the same level with developed and middle level economies which allow listing for SMEs as a way of enhancing their contribution to the economic growth.

Regional Bourses Agree
The opening up of the regional bourses to SMEs by late 2008 was agreed on by the Kenya, Uganda and Tanzania heads of stock exchanges at the East African Securities Exchange Association (EASEA) meeting held in Kampala on September 7. This will spur the trading in the yer to be established over the counter market at these stock exchanges.

Microfinance banking set to spur economic growth

Silence

After a couple of weeks of silence in this blog due to travel and work demands i must apologize to my avid readers for some dissapointment with my postings which havent been forthcoming.

Microfinance Banking

Microfinance is a term for the practice of providing financial services, such as microcredit, microsavings or microinsurance to poor people. By helping them to accumulate usably large sums of money, this expands their choices and reduces the risks they face.

Today after reading the case of Equity bank and others seriously following suite including the hirtheto big mans banks of yersteryears that are now hawking loans and other products,i was drawn aback to the role of microfinance banking in economic growth and profitability.

Internation Year of Microfinance

Today, microfinance plays a major role in the development of many African, Asian, and Latin American nations. Its impact is substantial enough to have warranted acknowledgment by the United Nations who declared 2005 "The international year of microfinance", reminding people that millions worldwide benefit from microfinance activities.

Economic Growth

It is generally accepted that long-term sustainable microfinance programmes hold enormous potential for national economic growth and development. Many microfinance institutions have sprung up and some are already applying for banking licenses. The future is indeed brighter for microfinance with the passing of microfinance bill in parliament. more

Accollades

Microfinance institutions are indeed set to change the course of business in the world. Case studies of Equity in Kenya and the Bangladesh bank attest to this. Both institutions have already wone various accollades for their work.

Asset Finance:The New Craze in Town

What is it?
This is typically structured as a line of credit secured by a specific asset or across a combination of existing assets. It encompass using balance sheet assets (such as accounts receivable, short-term investments or inventory) to obtain a loan or borrow money - the borrower provides a security interest in the assets to the lender. This differs from traditional financing methods, such as issuing debt or equity securities, as the company simply pledges some of its assets in exchange for a quick cash loan.
This type of financing is typically used for short-term borrowing or working capital. Companies using asset financing commonly pledge their accounts receivable, but the use of inventory assets is becoming more frequent.

NIC Bank
Every once in a while our customers require a helping hand to finance their assets. NIC Bank for example ventured into helping customers to acquire their assets with ease, whilst keeping our pricing very competitive. This augured well with the market and helped the company reap massive returns.

Asset Financing Now
Asset financing has become a major competitive ground for banks as they seek to increase their interest income-based revenue. Banks are competing on interest rates, collateral arrangements and longer repayment periods to persuade customers to take up this line of credit.
Already, asset financing is accounting for an average of 15 per cent of total interest income for banks. The industry believes potential to raise this figure exists, considering that most banks started giving asset financing more focus only in the last five years.More

Stanbic Bank
This is is a relatively new entrant in the asset financing market, having set up the department about four years ago. The company is financing 30 to 40 vehicles per month.

KCB
KCB’s recently launched Asset-Based Finance product allows customers to borrow from Sh1 million to purchase assets in a repayment period of 12 to 60 months. Borrowers are required to make a minimum deposit of 20 per cent of the value of new assets.

Asset based loans are perfect for:
-Company acquisitions and business mergers
-Management buy outs
-Financing expansion
-Turnaround finance
-Refinancing existing business loans

Why consider asset based financing for capital?
-Able to leverage sales growth today
-The lack of flexibility through regular bank financing is no longer an issue
-Revolving credit lines can be secured by your raw materials and finished goods inventory
-Access large amounts of cash that have already been invested in the infrastructure

Over The Counter Market Needed at NSE

Historically over-the-counter markets were established at the beginning of the 20th century and have grown by leaps and bounds to become important part of the current financial markets infrastructure. Kenya is however yet to fully appreciate and embrace this phenomenon that is likely to thrust capital markets trading a notch higher with increased listings and options for the investing public.

Over-the-counter (OTC) trading
This is to trade financial instruments such as stocks, bonds,commodities, or derivatives directly between two parties. It is the opposite of exchange trading which occurs on futurews exchanges or stock exchanges.An over-the-counter contract is a bilateral contract in which two parties agree on how a particular trade or agreement is to be settled in the future. For derivatives, these agreements are usually governed by an International Swaps and Derivatives Association agreement.An over-the-counter market is a financial market where products are traded over-the-counter.

Role of OTC
The over-the-counter market has taken on a huge dimension especially in the USA, because there it has given room for other often also high risk issuers to enter the market, something which would have been impossible for them on a bourse.

In general
The reason for which a stock is traded over-the-counter is usually because the company is small, making it unable to meet exchange listing requirements.
In Kenya this would ensure that many corporate entities that have often been shying away from listing at the bourse due to stringent listing requirements will have an opportunity to sell their shares for subscription by the public. This would enhance the number of options available to investors and eventually would enhance trade volumes, liquidity and widen the options available.

Financial Markets Contagion

Financial market
The financial market is an en elaborate markets that encompass the money market and the capital market. The money market facilitates short term borrowing whereas the capital markets provides for long term lending.

Financial market Interconnection
Advances in information and communication technology has seen many financial markets become interconnected and more often information released in one place will be replicated in other markets either positively or negatively depending on the nature. In Kenya, the regulators have been asked to be vigilant against the possibility of Kenya being affected by the financial crisis currently facing other parts of the world.

Financial contagion
Financial contagion refers to the phenomenon when one country's economy is negatively affected because of changes in the asset prices of another country's financial market.One particular example of this can be seen during the Asian financial crisis of the late 1990s. A more recent crisis where disruptions quickly spread into other areas of financial markets is the Subprime mortgage financial crisis in August 2007.

Subprime Virus
The subprime virus has gone global. Starting as a localised outbreak in the US market for risky subprime mortgages, it has spread into the supposedly safer markets and even into prime mortgages. Meanwhile, it has crossed into other loan species – particularly leveraged lending, where ballooning spreads have rattled the market and left banks holding big chunks of debt.

Effects
Those with bad leveraged bets face falling collateral values, tighter lending from prime brokers and illiquidity in some assets. That is probably exacerbated by investors seeking redemptions after two Bear Stearns funds blew up in June. That can force a fire sale of assets or a redemption freeze and more fear. more

Kenya financial market
Here in Kenya, although analysts concede the probability of contagion is low, the call is being made in view of the fact that foreign investors have increasingly been looking at the Kenya’s financial markets as a safer alternative to the developed and emerging markets where there has arisen a crisis resulting from failure of risky and poorly structured mortgage dubbed “sub-prime mortgages” market.The Central Bank of Kenya, Capital Markets Authority and the Nairobi Stock Exchange and Treasury are institutions that are in one way or another involved in monitoring of developments in the financial markets.

Emerging markets (EMs) Capital Markets
EMs far from the source of the initial shock can be victims though they are innocent bystanders. Because contagion is possible and likely for emerging markets the cost of capital market contagion could be major.

Big Q
The question is whether the contagion, which started in US housing, spreads back from financial markets into the real economy.

What's in a Name?

What's in a name?
Shakespeare once asked through one of his fictional characters. Another old adage goes that a rose will still smell the same, even if it is called by another name!.

Corporate Scene
The Kenyan corporate scene has been awash with news of different facets. The stock market is recording gains with indications that it might not be infected by the electioneering fever that is slowly creeping into our country with stories of proverbial horses in the race gearing for the penultimate showdown.
MPesa phonomenal growth is traversing international borders as new of mergers and acquisitions continue to hot up.
Companies are releasing outstanding results and profitability feats accompanied by bonuses and hefty dividends. Others are running back to the market to borrow through further rights issues and bonds issues.
Trancentury is entering the private equity and investments scene with a bang leaving many coveting their unparalleled feats.
News has it that the Treasury and the Commission of Monopolies has approved the buy out of CFC Group by Stanbic Bank, paving the way for further endorsement by banking and securities regulators. Closure of the deal will usher in Kenya's largest merger and acquisition deal, M&A, which is expected to change the way local banks sell financial services to the public.
Companies are rebranding and unleashing new products as banks continue hawking loans with a new found zeal. This comes after the realization that the common man who has a bank account

Kencell-Celtel-Zain
Kuwait’s MTC Group, the majority shareholder in Celtel, has formally announced a name change for its local subsidiary —the second in seven years . Celtel Kenya joins the company’s 21 sister companies in Africa and the Middle East in adopting the brand name Zain . The latest name change for Kenya’s second mobile phone service provider comes just three years after changed its trade name from KenCell following a buyout that brought in telecommunications tycoon Mohammed Ibrahim as the principal shareholder.
In 2004, Celtel bought its 60 per cent stake in KenCell Communications for $250 million prompting the name change.

MTC Group
This is the leading telecommunications mobile provider in 21 countries across the Middle East and Africa, today announced it has re-branded to Zain which becomes the Group's corporate master brand with immediate effect. In Africa the Zain Group will continue to trade under the Celtel brand.

Zain
Four country operations in Kuwait and Bahrain, (both formerly MTC-Vodafone), Jordan (formerly Fastlink) and Sudan (formerly Mobitel) will immediately re-brand to Zain. The Group will commence operations in the Kingdom of Saudi Arabia under the Zain brand in early 2008 after being awarded the third mobile telecommunications licence in July 2007. Additionally, the Group's successful operation in Iraq, MTC Atheer, will also re-brand to Zain in the near future after recently winning an extended 15 year nationwide licence.

TRANScending the CENTURY in Investments

Trancentury group is a company that (started as an investment group) has risen from obscurity to uccupy the coveted pedestal in the Kenyan corporate scene. Most young entrepreneurs striving to own big corporations and sit in big board meetings where they call the shots often look back at the feats that this politically connected company has attained within a short span of time for their motivation.

Over the years Trancentury has modelled itself as an active investment unit that employs creme-dela-creme in the investment and portfolio management cycles with incredible papers to run their affairs while the directors dig deeper into their pockets to unleash the much needed investment funds. This has borne fruits for this company.

Investment Groups

It is noteworthy that one in three working Kenyans is a member of an investment group and Sh30 billion is estimated to be held by these groups, almost close to the Sh 35 billion that Safaricom hopes to raise with its IPO later this year. Indeed their popularity has extended across the borders with Kenyans abroad pooling their resources to invest in the country, with the Nairobi Stock Exchange and real estate being the most popular areas of investment.

Portfolio

TCL’s current portfolio of investments traverses rail transport, financial services and manufacturing sectors with some of its most notable investments being a stake at the Rift Valley Railways (RVR), the concessionaire for the Kenyan and Ugandan Railways system.

Growth

Trans-Century’s foray into the regional markets signals the 10 year-old firm’s hawk-eyed strategy of seeking fundamentally viable, well positioned companies with attractive growth prospects. TCL has in the last five (5) years been making waves after a series of profitable acquisitions and stock market investments that has seen the company that started as an investment club with a capital base of Sh1 billion turn into a 14.3 billion fund in a decade.

East African Cables

East African Cables marked the start of the most successful part of investing for Transcentury Company Limited (TCL). In 2003, the firm closed one of its smartest deals yet by buying 75 per cent of East African Cables, which is listed on the NSE from Naushad Merali for Sh240 million. East African Cables is today worth Sh9.9 billion, meaning the TCL stake is valued at Sh7.4 billion. TRANS-CENTURY is the controlling shareholder in the East African Cables (EACL) group, through its subsidiary company Cable Holdings Ltd.

Products manufactured by Cables include copper electrical cables for domestic as well as industrial applications, aluminum conductors and cables for power distribution and transmission over national gridlines. After the acquisition (TCL owns 75 per cent of EAC) profit after tax has increased 30 times from Sh9.3 million in 2003 to Sh284 million in 2006. Sales have increased five times from Sh428 million to Sh2 billion.

Dausung Cable

TCL already dominates the electronic components market in Kenya, through East African Cables and in Tanzania after it acquired a 51 per cent stake in Tanzania’s Daesung Cable for $2.62 million from its Korean owners.

KPLC

It also has a two (2) per cent stake in Kenya Power & Lighting Company (KPLC), which also gives its investment portfolio a significant presence in the energy sector and an overweight exposure to risks in that sector as well.

TCL’s investment in KPLC is now worth Sh447 million. Money raised from the sale of KPLC shares was used to finance the Sh630 million investment in Rift Valley Railways— the company that won a 25-year contract to run the Mombasa-Kampala railway line.

Development Bank of Kenya

Last year TCL acquired a 10 per cent stake in Development Bank of Kenya from the Commonwealth Development Corporation (CDC). Development Bank of Kenya is a leading Kenyan development finance and commercial bank that focuses on the corporate market. TRANS-CENTURY holds a significant minority equity position in this entity and has invested along side Industrial Commercial and Development Corporation (ICDC) the investment arm of the Government of Kenya.

Equity Bank

TCL holds a 1.38 per cent stake in Equity Bank.

Kewberg Cables and Braids

Transcentury Limited (TCL) is in the process of refashioning itself into a private equity fund, has turned the tide by making audacious acquisitions of Kewberg Cables & Braids, a South African firm and ABB Tanelec, which is based in Tanzania.TCL has bought 100 per cent of the shares in the South African firm and 70 per cent of the Tanzanian firm allowing it to spread ita wings to the south african market.

Kewberg Cables & Braids (Pty) Limited, which is located in Johannesburg is a leading manufacturer of instrumentation and control cables for the oil and gas, mining and power sectors.

ABB Tanelec (Tanelec)

This is the largest manufacturer of electrical distribution transformers and switchgear in East and Central Africa. The Arusha-based Tanelec distributes its products to a number of Sub-Saharan African countries including: Tanzania, Kenya, Uganda, Zambia, Mozambique and the Democratic Republic of Congo.

The ABB Group of companies operates in around 100 countries and employs about 111,000 people.

Rift Valley Railways (RVR)

TCL is the largest minority investor with a 20 per cent equity stake.

Avery East Africa Ltd
TRANS-CENTURY holds a controlling stake in Avery East Africa. This company is the leading manufacturer and distributor of a complete range of domestic and industrial, manual and electronic weighing scales, as well as video jet printers for industrial use.

Aureos Capital Limited

This is an independent private equity fund manager focused exclusively on the emerging markets. Aureos specialises in providing expansion and buyout capital for low to mid-cap businesses with prospects for strong growth and profitability across Asia Pacific, Africa and Latin America. Established in July 2001, Aureos has to date raised and managed US$570m in 24 funds worldwide. Ten of these funds have been raised since 2001, with approximately US$395m of committed capital. In addition, Aureos manages 14 funds previously sponsored and administered by CDC Group plc.
TRANS-CENTURY has invested in three Aureos funds to date. These are the Aureos East Africa Fund, Aureos China Fund and Aureos South Asia Fund.

Business Partners International (BPI)

This is a specialist investment company which has partnered with the International Finance Corporation (IFC) to provide debt and equity capital, mentorship and property management services to Small and Medium Sized Enterprises (SMEs). TRANS-CENTURY has invested in the USD 14.1 Million BPI Kenya SME Fund.

Helios Investment Partners

Helios is a US$300 million private equity fund making private equity and ‘special situations’ investments in Sub-Saharan Africa with a focus on West Africa.

Real Estate
TRANS-CENTURY invests as a primary sponsor or along side other partners in green field and existing property ventures.

Business Prospects

Kenya: Locally, massive Government electrification programmes are ongoing which has consequently seen an increase in demand for quality cables and conductors to the power utility— Kenya Power and Lighting Company (KPLC). The rural electrification programme has connected more than 120,000 people to the national grid in the past 12 months.

Tanzania: massive cabling projects are expected to begin as Tanzania Electric Supply Company (Tanesco) prepares for a major upgrade, following the pumping in of $240 million by a syndicate of local commercial banks and pension funds for the recovery of the power utility firm.

Africa: Icnreasing demand for cables and other related products.

Other investment regions

TCL has invested in Zambia, Nigeria (indirectly) and South Africa.

Business blunders

This encompass Transcentury’s investment in Castle Brewing which closed its operations in Kenya after only a few years following a bruising battle with East African Breweries. In March 2006, news had it that Transcentury Group was to buy 24.9 percent stake in the largest mortgage finance company, Housing Finance Corporation of Kenya (HFCK). This led to a price rally at the NSE that latter led to the collapse of the deal to buy the stake as CDC demanded a market valuation of the stake.

Investments philosophy

-Looking for undervalued companies with potential.

-Not looking for easy going investments.

-Commitment to the company ideals

-Good corporate governance

Kenya Diaspora Indispensable in Development

Remittance home

The Kenyan government has been courting kenyan investors abroad thanks to their pivotal role in economic recovery strategy through direct investments and economic development. Their role in development is crucial in replenishing the national coffers through their remittances.

In Kenya, it is estimated that at least $1 billion is being remitted annuallyup from about $750 million in 2005. Between 45 per cent and 65 per cent of the money is received informally and therefore not captured in official records. They are indeed the top foreign exchange earners.

IMF says that these remittances are now the single largest source of forex ahead of tourism and horticulture in Kenya and, in Sub-Saharan African (SSA) countries, the transfers exceed Official Development Assistance(ODA) from development partners.

Sub Saharan Africa (SSA)

Kenya has emerged second to Nigeria among African recipients of foreign exchange remittances with households headed by women leading beneficiaries of offshore money transfers from individuals. These diaspora kenyans are influencing the macroeconomic variables back home including the exchange rate (Impacting the shilling), inflation rate and interest rates either directly or indirectly.

In absolute terms Kenya, Nigeria, and Senegal are the largest recipients of remittances in the region. Remittances from african diaspora form a quarter of all exports for at least four countries on the continent. For Lesotho, Cape Verde, Uganda, and Comoros, for instance, remittances have since 2000 amounted on average to more than 25 per cent of export earnings. In 2005, remittances to the 34 Sub Saharan Africa (SSA) countries reporting are estimated to have been about US$6.5 billion.

In kenya, the money is largely used by relatives to fight poverty through education and health support as well as investments in real estate and shares listed at the Nairobi Stock Exchange.

Diaspora at NSE

Kenyans professionals and entrepreneurs abroad have continued to play a crucial role in investments back home and for those who wish to return latter and enjoy their hard earn savings there preferred channels of investments has been the NSE and the property market. Infact 40 percent of new home buyers are Kenyans residing abroad acording to real estate developers.

The phenomenal growth of the NSE in the last 3 years and the price rally realized at the NSE last year, 2006, and partly in 2007 has seen many diaspora kenyans also remit their savings for investments in shares and other availabe options at the Nairobi Stock Exchange. Kenya Capital Investments Group is one such investment group that has consistently blogged on their activities and investments at the NSE. As some would say the future of ivnestments therefore lies in investment groups and why not given then feats realized by Trancentury in a span of less than ten years.

SSA vis other countries

Remittance flows to SSA are relatively small, 4 per cent of total remittances to developing countries and just 33 per cent of those to India, which receives the most. In contrast, countries in Latin America and the Caribbean received 25 per cent of all remittances, as did the countries of the East Asia and Pacific region.

Private Public Partnerships (PPP)

In 2006 the mutually beneficial relationship between the Capital Markets, the Government of Kenya and the Private Sector came to the fore with the raising of approximately Kshs. 12.04 billion, through the Initial Public Offerings (IPOs) of Kenya Electricity Generating Company, Scangroup and Eveready and the sale of additional shares in Mumias Sugar Company (MSC). As a result of the IPOs, the number of Central Depository and Settlement (CDS) accounts has increased from 86,820 on February 1 2006 to 634,420 on February 14 2007, a six fold increase. These developments alongside the implementation of Automated Trading System (ATS) has spurred interest at the NSE from locals and diaspora kenyans.

Therefore...

The Kenyan Diaspora has increasingly become an important part of the Kenyan Economy. Through remittance, the Diaspora has become the leading foreign exchange earner for Kenya. This has led to concerted efforts to actively involve them in the economic transformation of Kenya through Kenya diaspora investment forums.

Future Prospects

Experts have estimated that the remittance can be increased to over 3.4 Billion dollars a year if effective investmentment strategies are put in place with the argument being that Kenyans in the Diaspora look for investments elsewhere because investing in Kenya under present conditions is very risky. The report on Kenya Diaspora Investment Forum alongside other concerted efforts ( including Kenyans Abroad Investment Fund-KAIF) to address diaspora needs should be clearly scrutinized and their recommendations implemented.

Making Kenya Next Outsourcing Hub in Africa

Role of ICT
The 2006 Kenya ICT strategy promotes collaboration and outsourcing for economic growth and makes a good read. As a matter of fact, It is now evident that nations the world over have recognized the developmental opportunities as well as the challenges brought about by the fast-paced information age whose hallmark is information and communication technologies (ICTs). Evidence from developed countries has shown that ICTs can play a dramatic role in enhancing economic and social development by acting as a production sector for economic growth and an enabler for social development.

Sectoral Applications

ICT applications have enabled these countries make gigantic improvements in both productivity and quality in agriculture, manufacturing, infrastructure, public administration, and services such as finance, trade, distribution, marketing, education and health.

Kenya ICT Board

The newly launched Information and Communication Technology (ICT) board has started an aggressive campaign to market Kenya as the next outsourcing destination in the world after India and South Africa in this part of the world. South Africa with the largest economy and ICT infrastructure in the sub region, had been poised to lead the charge but now here comes Kenya with its fiber optic infrastructure being set up as well as the emergence of digital villages and kiosks all over the country.

Funding

The heavily funded ICT board plans to use the Sh8 billion loan it received from the World Bank in May to expand use of existing bandwidth, increase capacity for outsourcing as well as digitise the country’s 210 constituencies through digital villages.

Business Process Outsourcing is therefore an idea for 2007/08 and beyond and with enough capital you may wish to lay down strategies towards setting up a call center!

ICT and NSE

With the laying of the submarine cable and the country's fiber optic infrastructure time is now ripe for online shares trading and the emergence of online stock brockers in the league currenlty dominated by 18 brokers making it one of Kenya's exclusive clubs. The emergence of Online stockbrokers will be a move in the right direction. Currently hisanetafrica a stocks agency firm is providing online account management and reports and with the right infrastructure they can easily pounce on this new catch alongside other players as Eight Ltd and more.

Imperatives

As policy makers and the government strive to utilize ICT in all sectors as well as make Kenya an ICT hub it is vital to ensure the following:

Policy-Hasten the formulation of a legal and policy regime that regulates e-transaction, privacy and data protection, intellectual property rights, capacity building and generating content for the digital villages initiative, among others.

Connectivity-This will be achieved through the purchase of broadband capacity in regional and national networks for specific user groups such as universities, schools and technical colleges. Further there is need to fasten ther laying of the fiber optic cable infrastructure in the country and the under sea optic cable to connect Kenya and the world.

BPO-Speed up business process outsourcing (BPO) industry through intense marketing abroad so as to wrestle the pie from such developed economies as India. South Africa etc.

Implementation- There is need to implement the proposals of the Kenya’s National ICT Policy (2005) and ICT Strategy for Economic Growth (2006) amongst others.
Collaborations-The government should encourage partnerships with all stakeholders in maintaining a favorable climate for investment in ICT manufacturing and services.

Foreign Direct Investment-The should be full support for FDIs in this vital sector that is poised to steer Kenya towards Vision 2030.

Stock Markets wake up to Bloginvesting

Emerging Trends

It is now evident that the stock market has awaken to the realization that bloggers especially those inclined to comment on the financial markets have a great impact on the activities at any given bourse both in the emerging markets and the developed world.

More and more companies are entering the world of blogging, but why do they do it - what are the benefits?The internet is evolving, and so is the blogging phenomenon. Today we don’t only see the well-known personal weblogs, the blogging community has evolved to be a more topic-based system. When we look around, we will soon discover that most personal blogs have started focusing on a few topics - design, art, welfare, history, religion, movies etc and in our case financial markets and more specifically the capital markets of Africa and beyond.

Bloggers and Blogosphere

These are people who continue to churn out millions of pages of information every day as they endeavor to critically look at the various issues in the current world from politics to business, from social issues to environment from entreprenership to corporate deals and and from innovations to educational materials. Al strive to publish their blogs albeit with different levels of candorBlogosphere is a collective term encompassing all blogs and their interconnections. It is the perception that blogs exist together as a connected community or as a collection of communities or a social network.

Blogs and Investing

Market gossips on the internet is beginning to play a larger role in stock markets around the world as they are continually and increasingly being powerful sources of both information and disinformation. Finding out what they are talking about is becoming an important task for analysts, stock brokers, and other market players.

Some companies even abroad have gone so far to set up their blogs through which they provide markets with information outside the traditional media arrangements. In the US companies are increasingly using blogs to communicate with shareholders. Blogging allows shareholders to bypass their public relations departments, journalists and industry analysts and speak directly to the public.

US markets and Blogs

US hedge funds have introduced automated systems that will trawl through more than 40 Million internet sources from blogs to regulatory filings for information. These include monitor 110, yahoo finance, google finance, Thirty Fortune 500 companies now publish corporate blogs. Other companies encompass Amazon, Cisco Systems, Oracle, Boeing, General Motors have also embraced the trend.

Kenyan Blogs of Note

It is noteworthy that the blogosphere in Kenya has grown by leaps and bounds and today i would like to recognize the unparalleled contribution of these individuals. Their special niche in shaping corporate Kenya as well as public opinion on any emergent issues is invaluable. These special bloggers five of which would like to commend include:

-Bankelele with his avid analysis delivered with the candor it deserves.

-Kenya Capital Investment Group with their perspective of kenyans in diaspora.

-Riba capital with the incisive analysis despite current anactivity.

-Cold Tusker with his all rounded views leaning on the political.

-Odengle Nyang and Vituvingisana in the same category with the pundits perception on topical issues.

Bank on Banks Stocks in the Next 5 Years

The first half of the year 2007 saw many banks release their profitability results with many declaring good dividends followed by bonuses and even rights issues. Over the last few years Kenyan banks haven been on a profitability path and the momentum is not likely to be lost soon.

In 2006 the industry grew by 39.7 per cent to Shs 12.6B in the first half of the year up from Shs 9 B in 2005 over the same period.

Macro-economic Environment

The banking industry has been doing well since 2003 with indications that the momentum will be sustained over the next five years. Buoyed by favorable macroeconomic environment that encompass the stable inflation, exchange rate and interest rates. Kenya's robust banking industry may have improved tremendously in terms of size, profitability and product offering over the last 10 years but the growth does not reflect in the country's overall development despite the 6.3% growth realized in 2006/07 financial year. This is because despite news that the poverty index now stands at 46% it is evident that many are still living in abject poverty with nagging family obligations.

High fees and Interests rates

The emergent news on profitability by banks may be good news to stock punters but consumers of financial services are paying the highest price for borrowing little money from commercial banks. Further customers are continually being charged high account maintenance fees alogside other non interest charges that have compounded a bigger portion of banks profitability pie. This comes in the wake of recent calls by the CBK to banks to significantly reduce their interest rates on loans. This was followed by threat to name and shame the offenders but this seems to have fallen on deaf ears. Equity bank however did cap loan processing fees from 18% to 15% in response to CBK directive.

Growth

The new report indicated that the total assets for the banking sector grew from Ksh328 billion (US$482 million) in 1997 to Ksh746 (US$1.4 billion) in 2006, representing a 132% increase.
Similarly, profitability rose from Ksh 15 billion (US$23 million) in 1997 to Ksh 27 billion (US$41 million) in 2006. Their growth is expected to be sustained with still a small fraction of kenyans having bank accounts.

Finance Bill

The budget for 2007/08 financial year however has brought a new challenge of capitalization to Microfinance Institutions (as well as banks alike). MFIs had been pushing for the passing of the Microfinance Bill that would see these Small and Medium Enterprise (SMEs) lenders accept deposits among other things.

The finance bill stipulates inter alia to increase the minimal capital requirement for commercial banks from Ksh250million to Ksh1 billion within the next three years.

Mergers and Acquisitions

The move to increase capital requirements for banks is likely to precipitate moves for Mergers and Acquisitions (M&A) in the banking industry once the bill is enacted. CFC and Stanbic had already led the way and who knows with Equity acquiring 24% of Housing Finance they might push for a merger of this fast growing lender currently dogged by controversy and the mortage company.

Oligopolistic Tendencies

Three major banks, Barclays, Stanchart and KCB have dominated the banking sector, controlling between 40 and 50 per cent of the market throughout the past ten years leading a pack of more than 40 banks.

In terms of market share, the top five banks last year were Barclays Bank at 16 per cent, KCB at 13 per cent, Standard Chartered at 11 per cent, Co-operative Bank 8 per cent, Commercial Bank of Africa 5 per cent and National Bank of Kenya 5 per cent. The top ten players control more than 75 per cent of the market, with the remaining 32 sharing the balance. Bankelele has provided an avid analysis of the Kenya banks ranking.

Bank Stocks

With Banks profitability on the rise and their ambitious expansion programs to other markets coupled with mergers and acquisitions, investors will never go wrong banking on the stocks of the listed banks in the long run. These encompass Barclays, KCB, Stanchart, ICDCI (You can check my earlier analysis on ICDCI), CFC, NIC, Housing Finance, NBK, and DTK.

Buy hold and make money!

Kenya as an Emerging Capital Market (Part II)

Capital Market
Capital markets are an essential part of the financial sectors of modern economies. Providing alternative savings tools to savers and non-bank sources of financing for enterprises. The markets promote economic growth through improved efficiency in savings mobilization.
Nevertheless, in an economy of many private enterprises, many firms list in the market while many that qualify to do so do not due to fear of losing management control amongst others.

Banking Sector
Banks, in their dual role of being investment advisors as well as lenders may tend to indirectly discourage the stock exchange as a means of raising capital. For the Nairobi stock exchange, there is both inadequate marketing of itself trough efficient investor education programs as well as lack of a sufficient number of products listed at the bourse to attract more investors both local
and foreign although the current focus on upcoming Safaricom IPO is creating excitement across the globe even in Wall Stree cycles.

Factors in the Emerging Kenyan Capital Markets
There are factors that have to be addressed in terms of the stage of development of the Kenyan market. Countries with big equity markets have less volatile, more price efficient
markets with substantial degrees of liquidity. Most emerging markets, as in Kenya, are highly concentrated. As a result they tend to be undeveloped, and are small and illiquid, exhibiting pricing volatility and error. The more integrated the market to international markets, the less volatile the returns.

Institutional Investors and stability
A factor that drives markets strongly is the level of institutional arrangement and the regulatory framework. In Kenya, this may have neccessitated the need to allocate more shares to institutional investors referred to as 'Qualified Institutional Investors' to encourage market stability as opposed to more retail speculators who would sell at ther slightest of scare.

Emerging markets and development
The rise of emerging markets is changing the traditional view of development as follows.
-First, foreign "investment" is replacing foreign "assistance." Investing in the emerging markets is no longer associated with the traditional notion of providing development assistance to poorer nations.
-Second, emerging markets are rationalizing their trade relations and capital investment with industrialized countries. Trade and capital flows are directed more toward new market opportunities, and less by political consideration.
-Third, the increasing two-way trade and capital flows between emerging markets and industrialized countries reflect the transition from dependency to global interdependency.

Prospects?
Emerging markets like Kenya are the "key swing factor" in the future growth of world trade and global financial stability, and they will become critical players in global politics. They have a huge untapped potential and they are determined to undertake domestic reforms to support sustainable economic growth. If they can maintain political stability and succeed with their structural reforms, their future is promising.

So what?
The accelerated information exchange, especially with the aid of the Internet, is integrating emerging markets into the global market at a faster pace.

Kenya as an Emerging Capital Market (Part I)

Thanks to a blog comment by Bankelele, press statements and an email i got from Strathmore (which happens to have been my former university) on the upcoming finance conference on the capital markets i have ventured to look into this new phenomenon that is set to revolutionize the way business in done in this part of the world. The forum dubbed 'Kenya as an emerging capital market' will endeavor to address issues including monetary policy and capital markets, the integration of the East African capital markets, NSE as an engine for growth, private equity and venture capital, using capital markets to fund infrastructure and the the formation of the EA capital markets.
I therefore wish to expound on this issue that i hope will be comprehensively addressed during the capital markets forum on Friday 7th September 2007.

Emerging Markets
This is a term coined in 1981 by Antoine W. van Agtmael of the International Finance Corporation of the World Bank.
An Emerging Market Economy (EME), or Developing Market Economy (DME) is defined as an economy with low-to-middle per capita income. Such countries constitute approximately 80% of the global population, representing about 20% of the world's economies. The term emerging markets is commonly used to describe business and market activity in industrializing or emerging regions of the world.

What an EME Looks Like

• EMEs are characterized as transitional, meaning they are in the process of moving from a closed to an open market economy while building accountability within the system.


• As an emerging market, a country is embarking on an economic reform program that will lead it to stronger and more responsible economic performance levels, as well as transparency and efficiency in the capital market.


• An EME will also reform its exchange rate system because a stable local currency builds confidence in an economy, especially when foreigners are considering investing. Exchange rate reforms also reduce the desire for local investors to send their capital abroad (capital flight).


• Besides implementing reforms, an EME is also most likely receiving aid and guidance from large donor countries and/or world organizations such as the World Bank andInternational Monetary Fund.

Emerging Economies:
These are countries considered to be in a transitional phase between developing and developed status. Examples of emerging markets include China, India, Mexico,Brazil, much of South East Asia, countries in Eastern Europe, parts of Africa and Latin America.
The term "rapidly developing economies" is now being used to denote emerging markets such as The United Arab Emirates, Chile and Malaysia that are undergoing rapid growth.

Top 4 Emerging markets
According to the latest findings from the Grant Thornton International Business Report (IBR) published on April 19 2007, Mexico, Indonesia, Pakistan, and Turkey are the emerging markets to watch. They have identified them as the next generation of emerging economies set to have significant impacts on the world economy, although Mexico was already identified as an important economy in studies such as BRIMC (Brazil, Russia, India, Mexico and China), or as part of the G8+5. These countries may match or even overtake some of the commonly identified BRIC economies (Brazil, Russia, India and China) which are expected to join the global economic powers, although these economies are unlikely to match India or China in strength.

According to CEO of Grant Thornton, Indonesia and Pakistan, with their large populations, have the potential to grow their labour intensive exports and could capitalize on the process of low-cost production that mainland China has so successfully exploited.

World Stock Markets
Billions of dollars of share priced have been wiped out in world stock market, while credit markets have gone through a period of repricing that prompted fears of a meltdown. It is as if the world markets catch cold when the US market sneezes which set up the herd contagious instinct amongst investors. Contagion is the herding behaviour when expectations cause investors to pullout in response to a shock that hits the market. The expectations become self fulfilling when the behaviour causes a collapse of the markets despite sound fundamentals. As globalization advances, increased capital flows are likely to exacerbate the interdependence of economies and heighten the possibility of contagion.

EME vis World Markets
The integration and interdependence of financial markets has become evident in current years and the US markets being the largest in the world triggers contagion whenever a crisis such as the sub-prime mortgage loans hits it. This has far reaching effects on the emerging markets of Africa and Kenya is no exception.

Emerging Market Economies (EME) have to watch closely how the developed financial markets undertake their business operations in relation to their overall stability if they are to continually poise themselves for stable macroeconomic environments and capital markets advancements.

Local Politics vs. Global Economy
An emerging market economy must have to weigh local political and social factors as it attempts to open up its economy to the world. The people of an emerging market, who before were protected from the outside world, can often be distrustful of foreign investment. Emerging economies may also often have to deal with issues of national pride because citizens may be opposed to having foreigners owning parts of the local economy.
Moreover, opening up an emerging economy means that it will also be exposed to not only new work ethics and standards but also cultures as well: indeed the

Conclusion

Although emerging economies may be able to look forward to brighter opportunities and offer new areas of investment for foreign and developed economies, local officials of EMEs need to consider the effects of an open economy on its citizens. Furthermore, investors need to determine the risks when considering investing into an EME. The process of emergence may be difficult, slow and often stagnant at times. And even though emerging markets have survived global and local challenges in the past, they had to overcome some large obstacles to do so.

Kenya as an Emerging Market Economy (EME) therefore needs to brace itself for challenges that comes alongside this new recognition.

CMA: A Toothless Bulldog in Hibernation

Capital markets developments:
The budgetary estimates laid down during the financial year 2007/08 spelt out the following developments as far as the capital markets is concerned:
• The percentage of IPOs reserved for East African residents has been increased from 25% to 40%.
• Dividends not claimed from listed companies after seven years are to be remitted to the Investor Compensation Fund (ICF), which shall now be overseen by an ICF Board.
• The CMA can now impose sanctions, including financial penalties (not exceeding Kshs 10 million for institutions and Kshs 5 million for individuals). These shall be paid into the Investor Compensation Fund. In addition, the general penalty under the CMA Act has been increased to Kshs 15 million.

CMA on the Spot:
The CMA over the last few years due to the collapse of giant Uchumi Supermarkets and Francis Thuo and Partners as well as issues of insider trading that has been allegedly the case in most brokerage houses. Other issues include the issue of bouncing cheques as proceeds from the sale of securities to their clients by some rather big brokers in full view of CMA.
Unlike the Central Bank of Kenya (CBK) that has been on its toes in the regulation of Commercial Banks and the Monetary Policy, the CMA has been in hibernation. The CMA has been a stumbling block in the establishment of new brokerage firms and investment banks in the industry due to its high handed rules and unclear underdeals that seem to be doing runs this institition.

Applications:
In essence there are more than 200 applications for brokerage firms estblishment gathering dust at the CMA premises but upto now nothing has been done to them and essentially means no new broekerage firm will be coming up to help meet the increasing demand amongst the investing public that has seen long queues behind brokerage houses during IPOs. Their weakness is also being demonstrated by their inability to allow the opening up of an Over The Counter (OTC) market which thrives in many countries.

Stocks Agents:
Due to CMA’s weakness, there has been a huge retail market that has sprung up since September 2005 in the form of small starters who practice as stockbrocking agents at a commission ranging from between 20-50% of the brokerage fee. Although this is a good starting point for practitioners in the industry, it denies many entrepreneurs the opportunity to receive full commission for the clients they serve very diligently and with a lot of professionalism. Indeed, the agents also need their cover to limit underpaying by the powerful brokers who control the industry. Further, there is also need for the establishment of the stocks agents association although there have been alot of stumbling blocks on the way. Infact these agents should also operate like insurance agents but apparently as of now they not allowed to serve more than one broking house.

Underdevelopment of Equity Market:
The CMA takes the blame for our underdeveloped equity market. It goes without saying that real growth should start from the root- the brokerage firms. My recommendation would be that the CMA encourages more players (brokerage firms and investment banks) to get into the industry. I would also encourage the CMA to get tougher on regulation to avoid conflict of interests that has seen an industry player being the shareholder of some listed companies as well as the chairman of the NSE. This creates a compromising situation and sometimes it would be difficult to differentiate between shareholding and management.

Quarterly Reports:
This will call for industry scanning and allowing for public scrutiny. I would propose quarterly publication of accounts in the dailies in the same way commercial banks do. This should be done with the help of external auditors to guarantee transparency. My justification for this is the fact that like commercial banks, they too are handling public funds and like a listed firm, it is of importance to know that a firm is not highly exposed and be assured of its credibility.
With such measures, there would be no cases of losers in the stock market as was witnessed in the Uchumi collapse where shareholders could not even get the par value of the share. The Capital Markets Authority recently came up with the Investor Compensation Fund.

Establishment of the Investor Compensation Fund:
The ICF is established under the Capital Market Act Cap485A of the laws of Kenya and stipulates as follows under Article 18:

18. (1) There shall be established a Fund to be known as the Investor Compensation Fund for the purposes of granting compensation to investors who suffer pecuniary loss resulting from the failure of a licensed stockbroker or dealer, to meet his contractual obligations.
(2) The Compensation Fund shall consist of -
(a) such moneys as are required to be paid into the Compensation Fund by licensed persons;
(b) such sums of money as are paid under this Act as fines or penalties or under section 34 as ill-gotten gains where those harmed are not specifically identifiable;
(c) such sums of money as accrue from interest and profits from investing Compensation Fund moneys;
(d) such sums of money recovered by or on behalf of the Authority from entities whose failure to meet their obligations to investors result in payments from the Compensation fund; and
(e) interest deemed to accrue on the proceeds of a public issue or offer for sale of shares of a company listed or to be listed on an approved securities exchange, between the closing date and the date of dispatch of shares certificates or refund cheques, to be determined at the rate prescribed by the Authority.
(f) such sums of money as are received for purposes of the Compensation Fund from any other source approved by the Minister.
(3) Moneys which have accumulated in the Compensation Fund may be invested by the Authority in such manner as may be determined by the Authority.

Fund Limits:
An issue of importance is that compensation is limited to ksh 50,000 per client whereas the total pay out should not be more than 50% of the fund. There is also a maximum of ksh 5 million per collapsed broker / investment bank is payable as compensation to investors. Since NSE and CMA normally gets commission from their sale/buy orders of 0.01% there is need to revamp and strengthen Investor Compensation leading to investors shying away from the same.

Speculative Tendencies:
As the market slowly rejuvenates and with good prospects of economic growth projected to be above 6% for 2007/08 things are looking good for our stock market. It is also important to note that the occurrences at Francis Thuo and Uchumi Supermarket have served as a good lesson to many equity investors, as they have realized that one can be a millionaire overnight (as witnessed in the KenGen IPO) or end up a poor man for the rest of his life- as was witnessed in the Uchumi collapse. But as with all speculative markets, risk takers will take positions when the market is at its lows.
In Kenya, we have a potential investment population that is almost equivalent to the number of Kenyan voters being served by only eighteen (18) brokerage firms, save for the new broker, Renaissance Capital ( Russia's biggest Investment bank and a leader in most financial sectors as asset management, corporate finance etc) that has recently been awarded the license to provide investment banking and stockbroking services in place of the collapsed Francis Thuo broking house.

Financial Deepening and innovations:
CMA and NSE have been very slow in the opening up of the Over-The-Counter (OTC) market as well as adoption of new markets and products such as financial derivatives-futures, forwards, swaps, options that would widen the scope of available investment options for investors. Therefore investors have been struggling to cash in on the few available options moslty shares, bonds and equities. In this sectors despite the rapid growth that has been witnessed over a few years ago dur to increased IPOs by companies, there is still limited options compared to other markets in Africa such as Nigeria with over 190 Listed companies and capitalization off $2.23B, Johannesburg Stock Exchange (JSE) with over 400 listed forms and Cairo Stock Exchange and Alexandia Stock Exchange which forms Egypt Stock Exchange has over 833 companies. NSE has only 53 companies and several IPOs slated for the year.

Rogue Brokers:
CMA has also failed to reign in on rogue broker some trading in clients shares to rake in millions without bating an eyelid. Some of these brokers have become overnight millionnaires whereas their clients are leading modest lifestyles save for their stocks. In the industy, it is evident that there is very little room for competition.which has encouraged unprofessionalism. You will be surprised at how many times you miss a good deal at the expense of someone with a bigger account than you do or how many times you have issued sale or buy orders to your broker only to call them back a week and they haven't executed the same. At times they are seemingly oblivious of the happenings therein with rude receptions to accompany it.

Frequently, brokers have told their clients that they were unable to execute their orders because on that particular day, they were ‘dealing for their institutional investors’. When you are in such a predicament, you have no choice but to wait until the day when the stock broker goes ‘retail’. Sad enough, this could be long after share prices changed tremendously.

Hereditary Management and Protectionism:
Again, the management of most brokerage firms stands a big test. Notably, most of the brokerage firms are family owned and have adopted a very cyclic management system where the next of kin is always the person to take over. This has attracted a traditional approach to trading where fundamentals do not apply. It is not wrong to argue out that due to this, the same management has paved its way to control the regulators and the other players namely the Capital Markets Authority (CMA) and the NSE. The implications of this are increased protectionism when it comes to encouraging new players and sticking to old rules. As always new entrants are often seen with a suspicious eye and have to be vetted by a clique that consist of the 18 broking houses. This always need one to be on good books with them lest the deal goes sour. This is not encouraging for Kenya as an emerging market.

Market Research:
The current family set up of the brokerage firms has also kept talent at bay always employing their next of kin or people known to them. You will perhaps agree with me that there has been very limited research and commentaries that come from brokerage firms and investment banks. Contrary, the Fund Managers and Asset Managers have done limited research aimed at giving buy and sell recommendations geared towards their client needs. For the many years that the NSE 20 Share Index has been the basis of investment for most of its users, there has been no research or proposal sent for approval to CMA.

US Markets:
Compare this to the United States that has over 10 Indices rating the performance of the overall market and at least one index rating every single market segment. Being the market pros to their routing trading activity; stock brokers and investment banks are the only people who can steer growth as far as research is concerned. The US also have the Securities and Exchange Commission (SEC) similar to ou CMA that has been instrumental in ensuring that the market players are closely watched to avoid major corporate scandals line Enron's saga.

Securities and Exchange Commission (SEC):
The United States Securities and Exchange Commission (commonly known as the SEC) is a United Stated government agency having primary responsibility for enforcing the federal securities laws and regulating the securities industry/stock market.
The SEC was established by the United States Congress in 1934 as an independent, non-partisan, quasi-judicial regulatory agency following years of depression caused by the Great Crash of 1929. The main reason for the creation of the SEC was to regulate the stock market and prevent corporate abuses relating to the offering and sale of securities and corporate reporting. The SEC was given the power to license and regulate stock exchanges. Currently, the SEC is responsible for administering six major laws that govern the securities industry.
These encompass the Securities Act of 1933, the Trust Indenture Act of 1939, the Investment Company Act of 1940, the Investment Advisors Act of 1940, the Sarbanes-Oxley Act of 2002 and the Securities Exchange Act of 1934 amongst other statutes.
The SEC enforces the statutory requirement that public companies submit quarterly and annual reports, as well as other periodic reports amongst other regulations. More...

Compensation of investors who lost their money in collapsed stockbroker Francis Thuo kicks off this morning amid a simmering row between the Nairobi Stock Exchange and the regulator, Capital Markets Authority, over what to do with whatever remains of the Sh250 million raised from the sale of the firm’s seat at the bourse.The two institutions are fighting behind the scenes over the more than Sh100 million expected to remain after all claims are paid

Parting Shot:
A seasoned stockbroker with a good track record is an indespensable person in the pursuit of wealth. In the same breadth, an efficient management authority, in this case the CMA is fundamental in the management of all the players at the capital markets to ensure proper performance, allay investors fears and ensure security of investments for the investing public.

CMA should stop being a toothless bulldog and bite where it ought to!