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Wednesday, August 1, 2007

Of Cross Border Listing and Cross Trading (Part II)

Cross trading is the emerging trend where investors seeking to diversify their portfolio of investments would seek to venture into other markets and invest in such available options as equity, bonds, commercial papers, derivatives and other available products in that market.

East African perspective:
In East Africa for example, Investors have been craving for the stock market pie with Kenya leading the pack with several IPOs having been significantly oversubscribed with others slated for the year expected to follow the same record trend. Over the last 5 years, turnover at the NSE has grown phenomenally from Sh2.9 billion in 2002 to Sh95 billion last year while the number of CDSC accounts that have been opened have in the last 2 increased from 80,000 in 2005 to an estimated 700,000 investors to date.

Insatiable Appetite for Investments Opportunities:
The rally at the NSE has produced millionaires overnight.Take the case of EA Cables price rally that produced all times high of around Shs 1000 per share among the other shares price surge occassioned by the unprecedented news of stock splits, dividends and bonuses declared by most companies including Barclays, ICDCI, Sasini, CMC, KCB, Cables etc. It is evident that investors are hungry for other viable stock market investments as seen with the latest trend of switching to the emergent high return promising pyramid schemes that have sprouted in every corner of this country. Sadly though, most of these schemes were scams meant to defraud unsuspecting investors of their hard earned monies as seen with the widespread closures, default rates and collapse of even the seemingly big wigs of the pyramid scheme-DECI. Most investors lost their monies and statitistics available shows that this ran into hundreds of millions.
Some investors who had sold their stocks, leading to a bear run had the NSE, are now back with whatever little they managed to salvage.
Nonetheless, the oversubscription of all the IPOs from 2006 to date is a clear testament to the insatiable investment appetite in the country. The strong returns posted by Kenyan equities listed at the NSE have not gone unnoticed with international interest in the country’s markets building up in recent years latest among this is the interest receive from top Wall Street operatives.
African Stock markets:
Africa has only 15 active stock exchanges which include exchanges in South Africa, Nairobi, Uganda, Tanzania, Botswana, Nigeria, Cairo, Malawi, Mauritius, Namibia, Ghana, Zambia, Zimbabwe, Tunisia with the regions equity markets incomparable in size to other emerging markets worldwide posting a combined market capitalisation of US$39.2 billion, excluding South Africa's JSE, in 2005. The JSE which is the 16th largest exchange in the world, had a market capitalisation of US$ 566billion, accounting for 94 per cent of Sub—Saharan Africa’s total market cap. As it is, the JSE’s market cap is 14 times larger than all the other African markets combined(Business Daily).

Cross Trading, Stanbic Experience:
The continued media hype in Kenya lead many streaming to the appoitment banks and stock brokers to have a stake in the much publicizedStanbic Uganda IPO. However, after the rigorous process of filling forms and paying for the shares, Kenyan investors were the losers as they were considered for residual shares after all the local investors had gotten their share. After the meagre share allotted came the issue of share certificates that reminds us of the days NSE was still without the Central Depository system.

Recently, after the wait, the arrival of the Stanbic Bank Uganda’s dividend payout cheques (7%) was an excitement to many investors though this was short-lived as those who received the cheques were surprised that the dividend almost amounted to nothing after being converted to the local currency which is of higher value than that of the East african counterparts. Further, the paying of Ksh.1,000 bank charges for cheque clearance inorder to cash the cheques proved much higher than its value, especially for most investors with minimal share allocation. This made the dividen almost worthless if not useless. With some intervention, the cahrges were readjusted as follows; amount below 1000 cost ksh 100 and amounts above ksh 1000 would cost ksh 150. Read Bankelele's experience!

Cross Border Trading:
As earlier alluded, most investors who thronged dealers offices and banks to buy Stanbic had not considered the perils of investing in another currency and all associated stumbling blocks. The company and even the Ugandan Authorities had not instituted a proper dividend reinvestment program (DRIP) that would enable investors reinvest their dividends until such a latter date when cashing them would be worth the rigor.

Most investors did not understand that cross trading is normally affected by the market performance in the market concerned as well as the fluctuations in the foreign currency rates. Read more

1 comment:

J K said...

Yeah, while cross border investing is one sure way of having a well balanced portfolio, taking advantage or the strength of an economy while avoiding risks associated with certain events in ones own country is highly commendable, the ease at which one does this should be given ample consideration before plunging in. Take the case of Stanbic, I personally avoided it due to the facts you have so clearly enumerated and others. This guys are still into certs. Imagine you wish to transact with your shares but a discrepancy in your signature occurs. For verification, you must vist the companay's registrar, and I am sure they are not in Nairobi. So, until we have easy ways to engage in stocks across the East African region it will remain a headache. Efforts must be made to make the NSE, USE and the Dar one to be at par at least technology wise before we can start doing cross border trades with ease.