 THE STOCK MARKET IS ON THE ROCKS |
The Nairobi Stock Exchange (NSE), considered the best performing stock exchange of emerging countries in 1994, has been performing quite poorly. According to Mr. Paul Melly, Chief Executive of Capital Markets Authority - the public agency in charge of regulating capital markets - the NSE has already hit rock bottom. The cause is the general economic climate of the country and the scandalous interests rates of Treasury Bills (which were as high as 30%).
This drove away Investors from lower returns in the NSE. Consequently the turnover of capital markets dropped from Ksh 6.1 billion (US$ 80 mill) in 1997, to Ksh 2.5 billion (US$ 32.9 million) in 1998. Mr. Melly adds that the 1998 crises in South East Asia, Latin America and South Africa prompted international investors to quit emerging markets to cover losses, fleeing to more secure markets. Kenya has unfortunately been included in this package being perceived as a risky market. But Mr. Munge and Mr. Atha Nanu, Chairman and CEO respectively of Shah Munge & Partners, the largest brokerage house in Kenya with 20% of the market share, point out that Kenya has been totally unaffected by the fluctuations of international markets. Furthermore, they state that Africa offers a natural edge to portfolio and bank managers. In fact, 30% of the stock market was driven by foreign institutional investors who take a medium to long term view. "They buy into local firms because they see them cheap and they know that they are strong companies that will be around for a long time. | They do not bother about fluctuations due to domestic politics", stresses Mr. Munge. Actually, there is value for money for those who want to penetrate this market. When looking at the price/earnings multiples, in the UK you typically have multiples of 30. Barclays Bank, for instance, is trading in Kenya in multiples of 60. This clearly stresses the fact that assets in Kenya are truly undervalued.
Mr. Melly, from Capital Markets seems quite positive: "The only way is up now, and the climate for investing is slowly improving. By the year 2000 y foresee the end of the tunnel". However a few things need to improve. The electronic clearing system (Central Depository System) should become fully operational towards the end of 1999, although its implementation has been delayed. So far buying shares in the NSE is still very tedious and it is done manually. This partly explains the very low turnover experienced last year, only 4% of the market capitalization changed hands. This technological change would certainly boost performance. But the real future, as Mr. Munge points out, lays in the unification of the Stock Exchanges of Kenya, Tanzania and Uganda. |
