NSE boss allays fears about coronavirus effect on bourse
Wednesday, March 4th, 2020
The Nairobi Securities Exchange continues to grow investor wealth with key market indicators demonstrating heightened increase in the past two decades. Recently, however, the bourse’s performance has been suffering. Our reporter NOEL WANDERA spoke to Chief Executive Officer GEOFFREY ODUNDO to get a feel of the bourse’s performance
Q: The Nairobi Securities Exchange has not been performing well lately. What is the reason for this?
We are definitely experiencing lower trading volumes than in the past. Coming into 2019, we had very high expectations because we had come through an election and were going back to normality.
The economic front was very challenging. The market is divided into different types of investors – international and local.
The international continued coming. In fact, if you look at our turnover, it was mainly internationally driven.
The domestic front was, however, weaker. So the domestic institutional investors were largely putting their money in fixed income instruments like Treasury Bills and Fixed Bonds.
The retail segment was largely inactive because the purchasing power of Kenyans had gone down.
But if you look at the volume, exclusively on the issue of institutional trading, we are holding on well. In fact, last year, there was a report by Bloomberg that our market was the best performing in dollar terms.
So overall, we were able to still perform better in the region and Africa given a return of18.5 per cent.
Q: Please explain the impact of the coronavirus on Kenya’s stock market.
Companies operating in Kenya are being insulated from issues around the coronavirus in a way because of a lot of strong domestic demand of goods within the country and inter-regionally.
We will continue operating normally. People who are importing products from China will face certain challenges in the near short term.
To a vast proportion of companies trading on the NSE, we do not see a direct impact in the short term.
The impact could be on the demand side where investors reduce their exposure because of increased global risk, and not the fundamentals on the Kenyan market.
In terms of the market, we are resilient enough to withstand the onslaught.
Q: The NSE has been trying to rope in small and medium enterprises (SMEs). Tell us how successful this programme has been?
We set up the Ibuka plan to meet expectations of SMEs. The market has been around for 65 years but the firms listed are mainly medium and large companies. SMEs are a bit shy of the market.
This is due to many reasons among them understanding of the market and valuation and how to price your company, as well as issues around ownership.
We wanted to make the journey comfortable for them so we set up Ibuka, which is an incubation and acceleration programme.
Under the incubation, SMEs got through a training on how to run a listed company. Once they go in to acceleration, its even easier for them to convert.
Through that we have 23 companies so far, ranging from technology, entertainment, servicing, tourism among others.
Our expectation is we will now have a few of them converting to listed companies.
Q: Why should Kenyans invest in the futures market?
We set up the futures market last year. We are the second market in Africa to do so in 20 years, after the Johannesburg Stock Exchange.
We view this as part of our strategy. The NSE needed a layer of risk management through a hedging product.
If you buy a stock you are exposed. But when you hedge on the downside and the price goes down, your value also improves and so that de-risks the market. Secondly, derivatives are a margin product.
It means for a low value, I can actually buy a huge quarter because I am buying a leveraged product.
We asked ourselves, how do we work together towards going to a higher status such as an emerging market.
Thanks to the Capital Market Authority’s master plan, we were able to deliver the new product.
This will in the future help us trade in commodity derivates, which is necessary for Kenya to grow the market.
For a new product, we are trading actively. The volumes are in excess of Sh5 million.
What is even more interesting is retail traders are the most active here, as opposed to institutions.
I am confident that the more we educate the market, the more interest we will generate and the more products we will launch into the market.
Q: Kindly, expound on the Green Bonds and how are investors making money from this sector?
Kenya seems to be a very innovative market. We are among the first to set up a private sector green bond which is very unique.
We took an interest in this because we have a strong sovereign and corporate debt market.
Last I checked, the total outstanding bond market for both government and private sector was in excess of $15 billion (Sh1.5 trillion).
There was need for us to go into a new asset class while also responding to a need. Look at the geothermal, healthcare and housing sector, all these are green opportunities and there is a lot of international capital looking for sustainable opportunities the world over.
Issues around sustainability and climate change are forming a strong conversation. Even conventional fund managers are setting aside a particular percentage of their money for Green Bonds.
That is why we felt we should create that platform. We came up with the necessary rules and a framework contained in the Kenya Green Bond programme. This is going to be a high growth area for us this year.