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.

Kenya Capital: TPS Stock to Watch in 2008

With his avid analysis over time now MjengaKenya thinks that TPS is a stock to watch in 2008.
Given the trend that tourism in Kenya is expected to take with expectations of increased tourist in the next 5 years, this will translate to increased revenue for this company that has spread its tentacles accross east africa. TPS is well positioned to rake in higher returns and better stock prices.

Check out my earlier analysis on this company set to benefit from tourism upswing.

Bank on Banks Stocks in the Next 5 Years

The first half of the year 2007 saw many banks release their profitability results with many declaring good dividends followed by bonuses and even rights issues. Over the last few years Kenyan banks haven been on a profitability path and the momentum is not likely to be lost soon.

In 2006 the industry grew by 39.7 per cent to Shs 12.6B in the first half of the year up from Shs 9 B in 2005 over the same period.

Macro-economic Environment

The banking industry has been doing well since 2003 with indications that the momentum will be sustained over the next five years. Buoyed by favorable macroeconomic environment that encompass the stable inflation, exchange rate and interest rates. Kenya's robust banking industry may have improved tremendously in terms of size, profitability and product offering over the last 10 years but the growth does not reflect in the country's overall development despite the 6.3% growth realized in 2006/07 financial year. This is because despite news that the poverty index now stands at 46% it is evident that many are still living in abject poverty with nagging family obligations.

High fees and Interests rates

The emergent news on profitability by banks may be good news to stock punters but consumers of financial services are paying the highest price for borrowing little money from commercial banks. Further customers are continually being charged high account maintenance fees alogside other non interest charges that have compounded a bigger portion of banks profitability pie. This comes in the wake of recent calls by the CBK to banks to significantly reduce their interest rates on loans. This was followed by threat to name and shame the offenders but this seems to have fallen on deaf ears. Equity bank however did cap loan processing fees from 18% to 15% in response to CBK directive.

Growth

The new report indicated that the total assets for the banking sector grew from Ksh328 billion (US$482 million) in 1997 to Ksh746 (US$1.4 billion) in 2006, representing a 132% increase.
Similarly, profitability rose from Ksh 15 billion (US$23 million) in 1997 to Ksh 27 billion (US$41 million) in 2006. Their growth is expected to be sustained with still a small fraction of kenyans having bank accounts.

Finance Bill

The budget for 2007/08 financial year however has brought a new challenge of capitalization to Microfinance Institutions (as well as banks alike). MFIs had been pushing for the passing of the Microfinance Bill that would see these Small and Medium Enterprise (SMEs) lenders accept deposits among other things.

The finance bill stipulates inter alia to increase the minimal capital requirement for commercial banks from Ksh250million to Ksh1 billion within the next three years.

Mergers and Acquisitions

The move to increase capital requirements for banks is likely to precipitate moves for Mergers and Acquisitions (M&A) in the banking industry once the bill is enacted. CFC and Stanbic had already led the way and who knows with Equity acquiring 24% of Housing Finance they might push for a merger of this fast growing lender currently dogged by controversy and the mortage company.

Oligopolistic Tendencies

Three major banks, Barclays, Stanchart and KCB have dominated the banking sector, controlling between 40 and 50 per cent of the market throughout the past ten years leading a pack of more than 40 banks.

In terms of market share, the top five banks last year were Barclays Bank at 16 per cent, KCB at 13 per cent, Standard Chartered at 11 per cent, Co-operative Bank 8 per cent, Commercial Bank of Africa 5 per cent and National Bank of Kenya 5 per cent. The top ten players control more than 75 per cent of the market, with the remaining 32 sharing the balance. Bankelele has provided an avid analysis of the Kenya banks ranking.

Bank Stocks

With Banks profitability on the rise and their ambitious expansion programs to other markets coupled with mergers and acquisitions, investors will never go wrong banking on the stocks of the listed banks in the long run. These encompass Barclays, KCB, Stanchart, ICDCI (You can check my earlier analysis on ICDCI), CFC, NIC, Housing Finance, NBK, and DTK.

Buy hold and make money!