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!!!!

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...

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!

Revealed: Kenya's Exclusive Clubs

In Kenya there are many 'clubs' that are often deemed as only for members who have paid the joining fee. These 'clubs' are widespread and any new member intending to join must adhere to the strict guidelines and stringent rules set by those already with membership. These rules sometimes are inhibitions (choreographed stumbling blocks) meant to hinder any jokers from joining out of whims and not with serious consideration and well thought out intention.
Welcome to Kenya a place of exclusive clubs!

From sports facilities including golf clubs, tennis courts, swimming pools, gyms to night clubs and clandestine groups with 'Strictly Members Only' signs clearly imprinted in large bold letters at their entrance points, these exclusives places abound and are places arousing curiosity amongst the outsiders who would wish to have a peek at the goings-on in the inner circles of the clubs.

Investment Groups:
Talk about Investment groups and they have also become exclusively members only and sometimes a close politically correctness and patronage is an added advantage to the grouping. Remember Trancentury Group and the associated cliques. Its membership was started a few years ago and with right investment decisions the company have managed to amass alot of resources. Thanks to its closeness to the political elite, the company is now so exclusive and any new member is at the mercy of older members after paying hefty joining fees.

The sons and daughters of the Trancentury elite are now putting their best foot forward and have hit the road with their Baraka Ltd, another investment group fashioned in the style of Trancentury and upping their stakes in the investment arena.

Baraka Ltd:
Baraka Ltd (according to reliable source) is a new investment group consisting of politically connected young upcomming business entrepreneurs (mainly sons and daughters of the Trancentury elite) running their own successdul business ventures and possessing the requisite skills and academic papers to spruce up their investment endceavors and what more do they need. The sky is the limit!

Nairobi Stock Exchange:
The Nairobi Stock Exchange has also become an exclusive club with a few wealthy persons allegedly running the shows here. Do not forget that having the coveted seat at the NSE is also a subject of political maneuvres and off-the-cuff tactics.

Renaissance Capital:
Talking about the NSE, now Renaissance Capital (K) Limited moved a step closer to securing a stockbroker’s license when it won the tender for the purchase of the coveted seat on the Nairobi Stock Exchange tha fell vacant with the unprecedented collapse of Francis Thuo and Partner. The brokerage firm's wooes began with the sudden death of its main proprietor, Francis Thou.
Renaissance Capital bid was the second priced at Kshs 251 Million to Old Mutual Investment Management Services hefty price Sh452 million.

Now Renaissance Capital, Russia's leading Investment Bank, is now ushered into one of the most exclusive clubs—the 18-member NSE.

Turning the Heat on Financial Markets:
The Renaissance Group is a leading private investment bank operating mainly in Russia and the Commonwealth of Independent States (CIS). Renaissance Capital, which specialises in investing in high opportunity emerging markets, is estimated to have a market value of between $7 billion to $10 billion (over Sh700 billion) is set to turn the heat on local financial market players as it acquires more regulatory licenses to operate other services.
NIC Bank Capital had submitted a Sh180 million bid for the seat and was third.

Parliament:
As a matter of fact 2007 is an electioneering year and with several individual declaring their intetions to vie for the various seats, it is now emerging that the parliamentary seat is another coveted place that has become the preserve of the rich. With billions likely to be poured to 'shake every corner of the republic' it goes without saying that the monied will carry the day as the electorate blinded by small perks and handouts will rush to vote in their 'cherished leader' to join exclusive club of 222 members ( thanks to the rejection of the women bill and the constituencies bill that would have seen the number increase by 50- Nominated women and 40 new constituencies) with fat pockets, hefty salaries and substantial allowances to top it up.

Welcome to the club;

STRICTLY MEMBERS ONLY

and have a members day, wont you?

Rennaissance Capital Now sets Shop

License:

Europe's leading investment banker, Renaissance Capital, Tuesday received a license to operate as a local investment bank in Kenya and said it would to target Zimbabwe and Nigeria as one of its key markets in Africa.

Major Investment Bank:

Renaissance Capital is a leading investment banking firm in Russia, Ukraine, Central Asia and Sub-Saharan Africa. The company has market-leading positions in each of its core businesses – -Mergers & Acquisitions

- Equity and debt capital markets

-Securities sales and trading

-Research

-Derivatives

The company is wholly owned by employees and management and is part of the Renaissance Group.

Rennaissance Group:

Renaissance Capital is part of the Renaissance Group, an independent group of consumer finance, investment banking, asset management, merchant banking companies specializing in emerging markets. The Group began operations in Russia in 1995 and has since become the largest privately owned investment group.

Stephen Jennings, Renaissance Chief Executive Officer, said here the Kenyan license allowed the firm to set up its Africa regional headquarters in Nairobi, from where it invest an initial sum of 1 billion U.S. dollars in Africa's telecommunication sector.

Peek on fellow Bloggers and Newsportals:

Investors are waiting to see what these new kid on the block will bring to the stock market. Read out bankele's analysis of the new stock broker.

As various companies release their financial results the banking sector has realized some all time highs. Those who have released their results include Equity, KCB, BBK, NIC amongst others. Read more and the incisive analysis by Mjengakenya.

Standard Chartered Bank Kenya has reported a 21% increase in half-year pre-tax profit. The bank posted a Sh400,000 rise in its profitability to hit Sh2.3 billion, up from Sh1.9 billion over the same period in 2006 to be the second most profitable bank in Kenya after Barclays.

BBK PLC is bidding for ABN Amro Bank in Europe with sweet offers to Amro's shareholders.Read Kainvestor'a blog on this here.

Telkom Kenya rattles the big boys in their game with only a few months into its wireless operations that has attracted close to 150,000 subscribers and growing. Its targets are immense and its only a matter of time and they will be in the same league as Safaricom and Celtel. How about their profitability and sale of its 51% stake? The companies said to have bidded include, India’s Bharti Airtel, Reliance Communications and the Tata Group all for the 51 per cent in state-owned Telkom Kenya. Time will tell after a conference recently for the tenderers to buy the stake.

Confidence in the Nairobi Stock Exchange remains high despite a recent market correction and loss by investors of more than Sh80 million in the collapse of a brokerage firm.