Opinion and Analysis
Guest traders and stock brokers at the Nairobi Securities Exchange:
Reduced trading activity forced the bourse to issue a profit warning
for 2016. SALATON NJAU
By George Bodo
This year hasn’t been good for stocks. As at December
28, the NSE All-Share index was down 10 per cent while the NSE-20 Share
index had lost 22 per cent.
For the bourse operator, the Nairobi Securities Exchange
(NSE), the second full year of operations as a demutualised listed
entity has provided some reality check.
As at the time of my writing, equity turnover was
down 30 per cent year-on-year while the total number of shares traded
had retreated by 15 per cent.
Because the bourse makes money by slicing off a
portion of turnover as commissions, the reduced trading activity forced
it to issue a profit warning for FY2016.
Secondary bond trading, however, had a stellar
performance with turnover up 42 per cent; however, the razor-thin
margins could not help the exchange recoup some of the lost volumes on
the equity side.
I say it’s now time to move a step further above
the spot-based products. I don’t think the old straight-line
buy-low-sell-high narrative that has been pitched to local equity
investors for years, especially the less sophisticated ones, can
continue being the bedrock of the stock market in 2017 and beyond.
The local investment scene has incubated enough
sophistication so the bourse needs to introduce a new level of
sophistication in its offering via alternative asset classes; and I’m
looking forward to a number of such product platforms being launched in
2017.
The first one is stock market futures. I think the groundwork, including necessary legislations, has now been laid.
In the course of 2017, I expect the NSE to introduce both single-stock and index futures.
For single-stock futures, only three stocks
(Safaricom, KCB and Equity), in my assessment, will qualify initially.
Broadly, these futures products will be derivatives of the underlying
spot market — as in, they will be referencing actual daily spot trades
on stocks. Off the back of stock market futures, I would have hoped that
warehouse receipting could easily feed into such a loop.
This is because, generally, futures represent
tradable contracts in which the buyer and seller agree to trade at a
specific future date. Futures have been historically associated with
soft commodities such as wheat, rice or maize.
However, warehouse receipting has been in the pipeline for quite some time now and, in my assessment, may not fructify in 2017.
However, warehouse receipting has been in the pipeline for quite some time now and, in my assessment, may not fructify in 2017.
The second thing I’m looking forward to in 2017 is the secondary trading of Treasury bills.
Between January 2016 and at the time of my writing,
about Sh38 billion worth of Treasury bills had been rediscounted at the
Central Bank of Kenya.
This is huge, and although it only represented just
about nine per cent of total secondary market bond turnover so far, it
has the potential to grow significantly.
Enhance platforms
I’m also hoping that the plan to merge the two
securities depositories — Central Depository and Settlement Corporation
(CDSC) and CBK — could be actualised in 2017.
If it comes to fruition, it will greatly enhance such
platforms as the proposed securities lending framework (and even hasten
the introduction of short-selling) as well as fast-tracking settlements
to include even same-day trades.
As of today, CDSC is the custodian of stocks and corporate bonds listed at the NSE while CBK holds all government securities.
Lastly, I’m looking forward to NSE admitting its
first exchange-traded fund (ETF). Initially, it could have a structure
as simple as tracking the NSE 25-Share index, before it starts being
coated with additional derivatives.
Essentially, if these alternative asset classes hit
the market then we should look forward to a very vibrant capital
markets in 2017.
Mr Bodo is an investment analyst
george.bodo@gmail.com
No comments :
Post a Comment