Despite Raging Bear Run at NSE, All is not Lost

As the stock market reels under the global financial crisis, contrasting with the bull run realized in early 2007, and lack of investor confidence, a group of investors are feeling most of the heat with their stocks plunging below issue prices. Never mind the fact that some of the victim companies surpass their industry average performance and experts forecasting a bright outlook.January analysts report card gives NSE an empty return.

New IPOs
As most analysts expect more Initial Public Offers of most companies this year, Investment advisers, brokers and investors alike might be taking a back seat before venturing to take up the Offers for sale coming their way.Kenya Pipeline is set to be made public(read an analysis by Bankelele) In fact the Government offered papers are now more secure and give better returns on Investments and this might have informed the issuance of the Infrastructure Bond by the Government mid this week.
Kenya has budgeted over Sh51 billion in infrastructure bonds comprising Sh33 billion and Sh18 billion through a debut international sovereign bond and long term domestic bonds respectively to finance rehabilitation and expansion of the road network.At the onset Treasury has issued a Sh18.5 billion infrastructure bond.Potential investors expected to take up this issue include commercial banks, insurance firms, pension funds and private firms.

Market Performance
Overall, all investors at the Nairobi Stock Exchange have lost considerably if the market performance gauge —the NSE 20-Share Index— and market capitalisation are anything to go by.The index has been oscillating around the 3100 and 3500 mark and the psychological 3000 mark might surpassed what with the low investor confidence, considerable erosion of the investments in most counters and low trade turnovers. The bear run might persist butr not for long as it is a cycle like in any other market of the world.

20 Share Index and NASI
In close to 3 years, the index has slid from a high of 6161 points recorded in February 2007,opening levels of 5016 points for 2008 and peak of 5445.66, on June 9, and the NASI has declined by 41.13 per cent from a peak of 116.243 to 68.52 in the same period.

Global Financial Crisis
The global financial crisis has exacerbated the situation as foreign investors, who were expected to cushion the stock against any panic sale, have joined the retail investors in offloading the stock to consolidate their investments and probably explore other possible investments in other emerging market that promise to retunr good earnings on investments.

Strong Fundamentals
The above notwithstanding, the Kenyan financial market is still growing stronger by the day and though the effects of contagion might be felt, it is not all that bleak a future after all.
A company like Safaricom that entered the market with alot of expectations amongst the investing public remains fundamentally strong,though its shares have slid below the Sh5 offer price since they debuted at the NSE on June 9 this year, and oscillating around sh 3 by the end of January 2009.

Most Profitable Company
Safaricom is currently ranking as the most profitable listed company in Eastern Africa, whose only undoing has been the huge supply of the 40 billion listed shares into a market that previously had a mere 15 billion shares which brings in a case of poor structuring by the investment advisors for the IPO or the greed to raise so much money from the public that would stop at nothing to acquire the company.

Profitability
Safaricom saw its pre-tax profit rise to Sh8.9 billion for the six months ending September 30 last year, up from Sh8.7 billion recorded over similar period in 2007, is strong since it controls about 80 per cent of the market and is operating in a growing industry—Information and Communication Technology.

Regional Comparison
Compared to its regional counterparts, the NSE has registered the biggest loss so far since the beginning of the year.

Financial Crisis Contagion Bites

After many months of denial the Central Bank might at last be bowing to the pressure to cut down interests rates and rather this might be an acknowledge that the world financial crisis whose epicenter was the USA is now spreading its ferocious wings to African emerging markets and Kenya in particular. This was hot in the heels of a denial by the acting finance minister that all was well?


Financial Contagion
It is indeed true that any crisis in the developed economies of the world will have their effects on African emerging markets and Kenya being reliant on Tourism, Trade, and Remittance by Kenyans abroad, things might not be that rossy for us.
A decision by Central Bank to lower the minimum amount of money that investors need to buy T-Bills is yet another attempt to bring down interest rates and prevent the economy from going on a further downward spiral, analysts said.

Th reduction of minimum T-Bills purchase 10 times from Sh1 million to Sh100,000, opens a new window through which ordinary Kenyans can be drawn into funding government debt and pits commercial banks against the Central Bank in deposit mobilisation and interest paid to depositors.more

Regulatory Framework
What does the developing global recession portend for the local economy and our financial markets? What policy interventions are required? What audit and regulatory measures must be embraced in navigating the emerging challenges?
These are the pertinent questions we need to consider as the effects of the global financial crisis continue. More

Kenya's Vision 2030-a reality or not?

The media has been awash with news and information on the much touted kenya's Vision 2030 that is set to steer Kenya to the Status close to the First World. This vision has been 'dreamt' for us by the shennanigans and thinktanks at the Ministry of Planning and Vision 2030.

Pillars
If you may not be aware of this Vision its pillars as espoused in the details documents is economic political and social facets. I don not wish to delve into the nitty gritty of the same but my concern is the economic pillar in the sea of current economic quackmire and recession necessitated by the Sub Prime Mortgage Crisis in the US.This crisis has led to the collapse of the world financial giants while others are still reeling from its effects as they beg for Government bailouts.

World Economy
Indeed the world economy has been on a decline from the giant USA to the expansive Europe things have not been going well.This crisis to say the least has spread to Africa and Kenya is no exception. As it is said when US coughs Europe catches a cold and Africa shall be bed-ridden. Kenya that is reliant on Tourism and Exports within its struggling economy, will indeed realize reduced business and the uptake of tourist resorts and Villas even during this festive season shall be significantly reduced.

Outsourcing
Within the economic pillar of the Vision 2030 is the Business Process Outsourcing that has been seen to drive the Kenyan economy towards Vision 2030. This is indeed a new exposure for Kenya where companies in Europe and US alongside other developed economies od the world shall be utilizing the cheap services in Kenya alnd other emerging markets through outsourcing.
AS Kenya takes up th outsourcing bug the supply of business from the global economy may be reduced greatly due to economic crisis.

What next?
Although business process outsourcing is celebrated as a new ICT business to drive Kenya forward what next after the global Crisis?.Will Kenya still be the hub of business in East Africa or Will we perish with our Vision?

Wall Street Crisis

Dear readers,
After many Month of absence from the blog scene due to some unavoidable circumstances am happy to be back and rolling!!!! yepyyyyyyyy...

Crisis
However and quite sadly the goings on at the World's famous Street has led to financial contagion across the other markets of the world and many investors are loosing alot of money in their cherished financial assets.

Short Selling
The emegence of this crisis fueled by the Subprime mortgage crisis led to panic across major markets. This neccessitated the drastic drop in the prices of vibrant and fundamentally strong companies across the globe.

Short selling
Short selling a phenomenon involving selling of borrowed shares in the hope of replacing them as prices continue to fall became the order of the day.
This did not augur well for most of the counters amidst rapid flow of information from one continent to the next.

Rescue package
As the Wall Street giants continue to wallow in financial crisis and illiquidity, the Fed government's rescue of Fannie Mae, Freddie Mac and AIG demonstrated clearly that the financial turmoil continues on Wall Street and it is a matter of time before sanity resumes and investor confidence is restored.

Financial Contagion
Other major stock markets also tumbled with news of this crisis including Russia, Paris,Toronto, Germany, Asian Markets as well as emerging African markets amongst others.

Kenya
The Kenyan stock market was no exception and neeedless to say that most of these Wall Street investors had ventured into the Kenyan market through the much touted Safaricom IPO and their crisis in the far west will impact negatively in our market.
AIG for example is a major player in the stock market investing substanbtial amounts for perosns in Kenya and also abroad and more especially those who are keen on investing in emerging markets.
The rescue package might have come as a sigh of relief but time will tell where the markets are headed despite the slight rebound. Whether south or north!

Financial Reforms
The onset of this crisis has laid bare the need for stringent financial reforms to protect investors assets from rapid erosion once fundamentals change though in the slightest of ways. Further these reforms would ensure proper management of our financial markets and regulations of all financial innvoations icluding derivatives that are widely traded across the globe though not fully appreciated and understood by many.

Political will
This is imperative if rapid reforms and proper infrastructure is to be set up to avoid continuous problems facing investors young or savvy both in the developed economies of the world as well as the rapidly emerging markets.

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.