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.

Emerging Stock Market Trends in 2009 (Part I)

As we move forward a look at the African stock markets amidst the contagion of the Sub prime Morgage crisis that emanated in the US might not be that rossy after all. The Capital Markets Authority did make a case for highly capitalized financial institutions and risk based supervision approach amongst other recommendations in view of the crisis.Business confidence did slide as most companies review their investment plans and strategies in 2009.

Global Financial Crisis
The year 2008 in global financial markets has been one of the most volatile since the 1930s.The last serious bear market originated in Asia in 1997, but this 2008 crisis originated in the US.

Currencies
During 2008,emerging market currencies weakened against the US dollar as a result of
the rush to the US dollar and US Treasury instruments.Investors sought “safe havens”
and US Treasuries were considered the safest haven.

ILower Interest Rates
Recognising the severity of the credit crunch,in October major developed and
emerging central banks lowered interest rates in an unprecedented globally coordinated monetary policy effort.This was followed by the implementation of fiscal stimulus measures and loosening monetary policies from governments and central banks in developed as well as emerging markets. Thus far, more than US$1 trillion has been pledged by governments around the world to rejuvenate their domestic economiesincluding China, the US, Germany, the UK, Taiwan, Spain, Japan, South Korea,Russia, France, Australia, Hong Kong, Singapore and Malaysia.

Fastest Growing Economies
It is expected that the BRIC (Brazil, Russia, India and China) economies to continue to be akey driver of global economic growth.They are among the fastest growing economies in the world. The four markets together account for more than 40% of the world population. Domestic demand growth also remains robust. Moreover, Brazil and Russia are resource-rich countries and although there has been a recent fall in commodity prices, the longer trend for commodity prices is to increase and these countries will benefit from global demand for oil, steel, aluminum, pulp and other commodities.China continues to take great strides towards becoming a major global player.

Capital
Capital availability is the key question for emerging markets in 2009.Those who have it should do well.As for those who don't - it may be better not to ask.

This year is not going to be easy for the developing world. Lower commodity prices and slumping Western economies will damage growth. But with the United States, Western Europe and Japan all in recession and unlikely to emerge quickly, whatever growth there is in the world - not much - will be concentrated in emerging markets.

Emerging Market stocks
Given the steep market decline, investors have begun to shift their focus to the
increasingly attractive valuations in emerging markets.
NSE Chairman alluded that assets at the NSE are highly unbdervalued due to the persistent bearish trends that have failed to attract investors amidst current inflation and increase in the cost of living. Most investors at the NSE are retail.Uncertainty in the global financial markets is also suspected to be fuelling the investors’ jitters, with the deepening recession putting into doubt the chances of a quick recovery of stock markets.

2009 Outlook
While it is believed that the longer-term outlook for emerging markets remains positive due to the relatively strong fundamental characteristics and faster growth rate than theirdeveloped counterparts, 2009 is expected to be challenging. We can expect more volatility in view of slowing growth and recession concerns in major world economies,volatile exchange rates and commodity prices, and a global credit crunch.
Investors should brace for lower returns in the first quarter of the year 2009.

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.

Safaricom Much touted IPO: Bits and Pieces

D-day At Last
Kenya's largest mobile telecommunications network service provider, Safaricom, will launch its initial public offer March 28 and closes on April 23 taking a total of 26 days. This offer for sale will give Kenyans amble opportunity to invest.

Stakes
The government will offer 25% of the issued ordinary shares of Safaricom. The IPO will offer 10 billion shares priced at 5 Kenyan shillings a share, which implies a value of KES200 billion ($3 billion).

High Expectations
Thw Governement hopes to raise KES50 billion from the IPO, which will be used to finance development programs and hopefully to supplement the budgetary deficit that had been witnessed in the FY 206/07.


Pools
The offer will be split into two pools - domestic and international. The international pool will be open to institutional investors only. The price will be determined through a book-building.
Investors in the domestic pool will have to buy a minimum of 2,000 shares. This means that any Kenyan intending to invest (and i know many including mama mbogas) are keen to have a stak of this 'sexy pie' and probably make a kill when it comes for trading in may.

Market Share
Safaricom's estimated market share at the end of December was 80%. The company has nearly 10 million subscribers.

Advisors
Morgan Stanley and with local investment bank, Dyer & Blair are the transaction advisors alongside other banks as citibank.

Official IPO site
The official IPO site is here

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!!!!

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.

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.

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.

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!

Africa Capital Markets; Which Way Forward

Immense Growth: The last decade has witnessed a rapid and immense growth amongst the African Stock markets in terms of market capitalization, listed firms, available equities, bonds and debt instruments listed, number of investors and brokers, innovative financial products that have enhanced the deepening of the African capirtal markets as well as the growing interest by Small and Medium Enterprises (SMEs ) to offer the shares through Initial Public Offers for subscription by the public.
Investors: There has also been a strong and growing focus amongst the investors in the developed economies of the world to invest in the African Stock Markets with a focus of capitalizing on the opportunities available therein in portfolio diversification and enhance portfolio return.
The African capital markets encompass the following:
-The African capital markets encompass 16 member strong African Stock Exchanges Association (ASEA) dealing in a broad range of securities and include the fast growing markets of Nigeria, Ghana and South Africa.
-An equities market representing a host of the Continent' s strongest , reputabe and profitable companies.
-The fast growing private equity and Venture Capital markets dealing in Small and Medium Enterprises.
-A fast growing bond and debt securities market.
-A growing derivative and innovative structured products market.
-Most of the African Stock Exchange Association (ASEA) members have totally deregulated their foreign exchange controls provide free and unfeterred access for investors around the world.
-In Nigeria, the Nigerian Stock Exchange in association with the Nigerian Central Bank have developed a pain free system for foreign investors to access and invest in the Nigerian Stock Market (Central Securities Clearing System is the securities clearing body) and repatriate their returns without hassle.
-The African capital markets are being rated as having the highest return in the World in dollar terms.
-The capital markets in Africa are beginning to open up and open up significantly. For example who would have forecast 12 months ago that, by this time this year Nigeria's markets would see $3bn worth of new issuances?
-Countries like Nigeria, Ghana, Kenya and even Zimbabwe are all offering investment opportunities.“Nigeria’s market has made average returns of over 30% this year and Zimbabwe’s returned over 100% this year even after adjusting for inflation, so there’s a lot of interest, and a lot of investment.
-Kenya is also rapidly gaining popularity amongst the western investors ands especially the top Wall Street Investment Banks with its rapid growth and increased IPOs that have been oversubscribed.
-The East African stock exchanges have mooted a plan to merge and form one East African Exchange that will be a step towards the integration of the countries in the East African Community. The Exchange will widen the scope of investment opportunities available to investors.
-African Capital markets are also contemplating forming a universal african capital market whereupon trading, listing and other financial market operations will run smoothly without any difficulting enabling investors undertake their investment decisions. Companies intending to list in other african exchanges will be able to do so without much stumbling blocks and hindrances set by countries.
-Egypt and South African stock markets have grown by leaps and bound and lead the continents stock market capitalizations and number of listing companies.
-Johannesburg stock exchange has for a long time attracted alot of investors from the developed markets as USA, London as well as from other parts of Africa. With the world cup 2010 being held in SA things are looking good for this market and if the current trends are to go by, investors in tourism, real estate, banking and such like stocks will reap bountifully.
-In Kenya the stakes raised with expectation of the continents much awaited listing of Safaricom, Kenya's leading and most profitable company cannot be overemphasized. The tender bids already issued have attracted hosts of major investment banks in Kenya , USA and far and wide, leading legal experts, brokers, top banks, as well as registrars and other operatives. We can lonly wait and see despite threats of impending court battles.
-The establishment of the privatization commission in Kenya is long overdue and with parliament forcing the minister of Finance to gazette the same, things are up and running and what more share we say except to invest, invest and invest in our lovely continent.

Chindia- The Emerging Economic Clout

Today i was feeling 'global' and thought why not check the other world economies and the influence on our stock market as well as other emerging markets. Upon extensive research i realized that some of the top four rapidly expanding economies have a bearing on our Sub Saharan developing economies.

G8: Alongside the other developed countries of the G8 with massive economic clout and global political influence China, India, Russia and Brazil are attracting massive Foreign Direct Investments. This new influence by China and India is what i would call Chindia.

India:

India was one of the world's poorest economies when it won its independence from Britain in 1947. Incredibly, 60 years later, the country's emerging economic clout has made it Asia's top spot for billionaires.

India's emerging economic clout: This has made it Asia's top spot for billionaires with its 40 richest businesspeople worth a collective $170 billion, up from $106 billion last year, according to leading American business magazine Forbes.

India's Stock Market:

India's hot stock market, up 39 per cent this year, and its robust real estate market helped swell most fortunes. In the last three years, the Bombay Stock Exchange's benchmark Sensex index soared from 6,000 to more than 15,000 recently.

Indian Billionaires: The collective wealth of Indian billionaires jumped six fold from $32 billion to $191 billion in that time. The notable 2004 elimination of capital gains tax on the sale of equity shares, encouraged entrepreneurs to list their companies.

Rising Stocks: If the stock market keeps rising, the tide of good fortune will continue to create many more of the newly rich.

Corruption: Now that India is playing a larger role in the world economy the issue of corruption in public and private sector is slowly coming to a sharp focus. One wonders however whether corruption will slow growth or growth will slow corruption. [More].

China:
The last two decades has seen the emergence of new and rapidly growing world economies that are slowly emerging as the top and fastest growing economies with good investment prospects for foregin investors.

The Chinese economy grew at 11.9% in the last quarter and could probably be growing at its fastest in 12 years.

China's Quality Fade:Despite the increased net exports of the Chinese Exports to Africa, America and other markets, there have been increasing concerns of quality fade in most of its products branded made in China.

China stock market:

Chinese shares have continued rising at a breakneck pace, pushing Shanghai's main stock index through the 4,000 mark for the first time in May 2007. Shanghai's benchmark CSI 300 index had closed up 2.6% at 4,090.57. The index has doubled in value this year and quadrupled since the start of 2006.

China's stock markets: The markets are almost going mad, actually, with the leading Shanghai market continually rising as ordinary Chinese flock to buy equities in breathless, record numbers. The bull market is so dramatic — the Shanghai index has hit record highs with slight falls on the way as others warn againstt "blind optimism." and "Irrational exuberance."
College students, yuppies, retirees and others are buying individual shares or investing in China's swelling mutual funds.

Brazil:
Along with China, India and Russia, Brazil is a country overflowing with opportunities to attract foreign capital. Brazil is the leading the way in Latin America’s economic development. In 2006, it was the 3rd largest economy in the western hemisphere and the 11th largest in the world. The economy has stabilized, the legislative reforms of the Lula Da Silva government are boosting cooperation between the public and private sectors, imbalances are improving, and the high valuation of markets is attracting the attention of foreign investors.

Brazilian Stocks:

Barely four years ago, the largest Latin American stock markets were on the black list of investors in emerging markets. The economic crisis in Argentina, along with the arrival of Lula as president of Brazil. Now, the Brazilian currency, the real, as well as the country’s stock market are both at all-time highs.

“If you want to be in Latin America, you have to be in Brazil,” notes Rafael Pampillón, professor of economics at the Instituto de Empresa business school in Madrid.

Emerging Economy: Because Brazil is an emerging economy, there are many sectors where investors can make the most of the gold mine contained in Brazil’s economic develop

Stock Market Appeal:

For more than 20 years, Brazilian capital markets were characterized by protectionism and underdevelopment. Following the improvement in the economy, capital markets began to modernize. Lately, Brazil has been benefiting from a favorable external environment. On a global level, it has significant liquidity. In a broad range of financial markets, prices have risen at a brisk pace and the country has growing economic ties with developed economies.More...

Global Markets Calm:

Despite the calm down, investors are bracing themselves for fresh stock turmoil in the coming week after riding a roller-coaster on world markets in recent days, amid fears that US home loan woes could trigger a credit crunch.The pumping of tens of billions of dollars by central banks in US, EU and Japan into the markets on Thursday and Friday helped to ease the panic and stave off fears of a global economic crisis.

The short-term money markets have also eased after efforts by central banks to keep money flowing through the system. [More]

Investing at Home while away from Home

I am looking for kenyans abroad who have the intention and ability to invest in the now vibrant Kenyan stock market. anyone out there????

Stock market has become the latest fad in Kenya and many rural folks young and old, men and women and rushing to cash in on this new craze.

The expected listing of new companies in the Nairobi Stock Exchange (NSE) including Kenya Re and Safaricom is expected to add an impetus to the vibrancy and ensure better returns for investors.

Anyone who is abroad and wants to channel foreign direct investments into kenya to drop me a line and lets see how far we can go this year. For financial advice, company analysis, portfolio management and many more we can always talk.

Jeff