Investing In Africa Against whose Index?

Historical Bull and Bear Runs:

As the Nairobi Stock exchange (NSE) basks in the glow of a historical bull run that was was witnessed during the second half of 2006, as well as the increasing number of Initial Public offerings (IPOs) that have stirred the market and susbstatially adding to the market capitalization, analysts and market players alike have continually expressed concern that the NSE 20 share index may not be reflecting the true picture of the market.

The sales of the shares at the NSE have hit historical highs and the stock market has been flirting with irrelevance after failing to adopt new and more robust market performance indicators that are reflective based on the share price movements and mode of computation.

New NSE Index:

As you may wish to know the newly revised NSE 20 share index that was announced last month led to the replacement of 6 counters out of the 20 stocks that constitute the index. The new index saw the inclusion of ICDCI, Kengen, Mumias, Rea Vipingo, CMC (Cooper Motors Corporation) and equally led to the dropping of NIC, BOC, Unilever, Kakuzi, Uchumi and Williamson Tea.
The index that is used an indicator of activity at the bourse has declined by a total of 30.03 points in the 2 days since the inclusion of 6 new constituent counters on Wednesday. Contrary to this, the former index had shown a sustained rally in the recent past, rising by 180 points (3.61%) last week. This is indeed a clear disparity between the two indices in terms of composition and computation and further is a reflection of the lower prices of the 6 new stocks as well as the weights assigned to the new constituent.

NSE in the global market:

Statistics available indicate that the Kenyan stock market is the world's 6th worst performer this year after declining by about 5% between January and June when the market experienced an unprecedented bear run where the index declined from all times high of around 6000 points to around 4000 Points. The bear run was occassioned by surging sales due to increased investor news e.g school fees, low demands for shares, plummeting prices, emergent hig return investment schemes (Pyramids/Ponzi schemes) that have hirtheto collapsed. Furthermore was the evident market scare due to low returns from previous IPOs that had been expected to provide significant returns (excluding Kengen that realized remarkable feats).

The Nairobi Stock Exchange (NSE) is only outpaced by Sri Lanka, which declined by 6%, Trinidad Tobago at 8%, Saudi Arabia at12%, Jamaica at13% and Venezuela at 24%.

China's Unrelenting courtship:

On a positive note, China's CSI Index continues to surprise investors and has gained 112% year-to-date, an indicatio that local Chinese investors have discovered the stock market with a vengeance and China in turn seems to have discovered Africa in a big way this year with a rally to play a bigger role in Africa's development initiatives to the chagrin of the western counterparts who are feeling threatened by this emerging courtship.(Does the building of fly overs in Nairobi and dual carriage ways ring a bell?).

African Capital Markets:

The noticeable trend is that Africa's capital markets are expanding rapidly with corresponding adoption of the Information and Communciation Technology (ICT) in its operation. The NSE for example moved quite fast to adopt a Central Depository System and a computerized shares trading system acquired from Millenium Technologies of Sri Lanka at substatial capital outla. Other markets includinf johannesburg are ahead of the pack whereas others are still following suite.

All African markets with the exception of Kenya have performed very well so far this year. Nigeria and Botswana are among the world's top performing markets. Lagos Stock Market has risen 52% while the Gaberone Index gained 43%. South Africa is up 16%, Namibia 17% and Mauritius 20%.
Market Correction:

There are indications that the Kenyan Stock market has alot to offer and looks rather interesting with good risk/reward entry at current levels of valuation after shedding significant points (5%) beween January and June a trend seen by analysts to have been a market correction. There is a growing probability that the NSE will catch up with other African stock markets from the third quarter of this year, especially once the Initial Public Offer (IPO) of East Africa's most profitable company, Safaricom, is listed on the bourse.
Kenya hopes to raise Ksh 35bn from the sale of a 25% stake in Safaricom, East Africa's biggest mobile-phone company.

Foreign Direct Investments (FDI):

It is noteworthy that larger flows of foreign funds are expected to come into the NSE, which should again bring new confidence and renewed hope to the local bourse. For the longer-term investor, the market seems to be at an equilibrium now and the potential for upside gain most probably will be greater than the downside risk at current levels

NSE Making Progress:

Foreign investors are often positively surprised to hear that proportionally more people make

mobile phone calls in Nairobi than they do in New York. The younger generation of Kenyans more outward-looking, enterprising and better educated, less dependent on the patronage of state and local politicians are re-shaping Kenyan busines. More and more foreigners seem to take notice. Overall investment into African capital markets, however, is still rather small. But stock markets like the NSE are making significant progress. In October 2006, the NSE began automated trading, moving away from the open cry system of trading that had been used for 15 years (All Africa).

Global Fund Managers eyeing Africa:

A positive trend is that more global fund managers seem to agree that the risks of investing in Africa in general and in Kenya in particular are less then they are perceived to be. Africa often rakes in better returns for investors than Europe, Asia or America. For instance the Kenya Electricity Generating Company (KenGen) IPO that heralded more retail investor participation on the NSE saw the exchange's equity turnover rise by almost 300%, in May 2006 when KenGen was listed, to Ksh11,4bn.
New era of long term investing vis speculation:

With a significant number of Kenyans now partaking in the NSE, it set in motion a new era of stock market investing in Kenya, which went from one extreme of bullish sentiment to the other where some investors lost more money than they thought when the market had an expected and natural pull back. Instead of being "once bitten and twice shy" local investors might want to see the stock market more as a long-term investment instead of short-term speculation.(All Africa)

East African Tiger?

Economic Survey

The recent economic survey released by the Central Bureau of Statistics (CBS) in collaboration with the Ministry of Planning and National Development reveals that the global economy continued expanding in 2006 with economic activity in most regions exceding expectation. The global growth recorded a rise of 5.1% in 2006 mainly boosted by robust growth in US, Euro Area and China.

Oil prices continued to rise with metal prices being driven mainly by the high demand in the emerging Asian markets.The Sub Saharan Africa region experienced the strongest period of the economic expansion since 1970s with 5.2% growth which is projected to increase to 6.3% in 2007.

Real Gross Domestic Product

GDP expanded by 6.1% in 2006 compared to 5.7% in 2005, 5.1% in 2004, 2.9% in 2003 and 0.5% in 2002. The growth was boosted with agriculture and Transport and communication being the main source of growth.

Over these few years of the NARC administration the economy has grown marginally with further projections of even better growth in the next decade. It is worth noting that the economic projections for the 2007/2008 is expected to near the 7% mark if all macroeconomic variables at play continue being stable as the major economic drivers realize increased activity.

With this in mind i was left wondering whether Kenya will one day realize such spectacular growth as was witnessed within the Asian economies that came to be know as the Asian Tigers.

The Tigers

This term was coined in reference to the economies of Hong Kong, Singapore, South Korea and Taiwan. These economies were also known as Asia's Four Little Dragons and were noted for maintaining high growth rates and rapid industrialization between the early 1960s and 1990s. In the early 21st century, with the original four Tigers at or near to fully developed status, attention has increasingly shifted to other Asian economies which are experiencing rapid economic transformation at the present time which include India, China, Japan, Indonesia and Phillipines amongst others.

East African Tiger?

With the foregoing spectacular growth of many economies in East Asia over the past 30 years which amazed many professionals i wondered whether some day Kenya will realize such no mean stature. With the current upgrading of Kenya in the world map from the Least Developed Country (LDC) to the Developing world status might be a sign of good tidings to come and a step in the right direction. The Kenyan economy has realized significant activity in Agriculture with alot of Investments by both local and foreign investors has also been boosted the transport and commucation infrastructure showing signs of further growth. Transport and Comunication, Business Process Outsourcing (BPO), Information Technology etc.

Vision 2030

I believe that with the launch of the vision 2030 by the government Kenya is so close yet so far to becoming a nation to reckon with interms of the world economic muscle. However alot of things have to be in place if Kenya is to go down the road of economic prosperity with the three vision pillars of Economic, Political and Social being at interplay. It is neccessary to provide a conducive environment for Foreign Direct Investments (FDI) in industrial production/manufacturing, agriculture, business process oursourcing, financial markets/money banking and finance, technology, infrastructure, mobile telephony, transport and communication, tourism, energy, building and construction etc.

The vibrancy of the Kenyan stock market is notable and with further listing of more companies in this bourse investors across the global divide will stream in to invest in the country. Correspondingly, corporate governance within most corporations will be enhanced greatly as the watchful eye of the Capital markets and the Nairobi Stock Exchange keeps them in check. The capital market activity in recent times is much touted to spur economic growth leading to eventual development that would propel us to be an economic TIGER.

I HAVE A DREAM!