In Summary
- There is a lukewarm interest in real estate investment trusts while the Growth Enterprise Market Segments has failed to attract issuers.
- Stockbrokers and investment bankers blame it on lack of public awareness of the new products and a general lack of interest in the stockmarket.
- The Gems platform has only attracted six companies in four years
- The REITs market was launched in 2015 but there has been a slow uptake as many people do not understand the product.
Stocks in Kenya fell 21 per cent last year as investors
ignored efforts by capital markets regulators to bring in new products
to boost trade on the market, which has been hit hard by a prolonged
bear run.
The conventional trading products on the Nairobi Securities
Exchange — bonds and shares — which are highly price-sensitive, have
prompted the need for diversification to reduce investors’ exposure to
risk.
The EastAfrican has learnt that attempts by the Capital
Markets Authority (CMA) and the NSE to introduce new investment
products on the bourse have failed to ignite excitement among investors.
Stockbrokers and investment bankers blamed the lukewarm interest
in real estate investment trusts (REITs) and the failure of the Growth
Enterprise Market Segments (Gems) to attract issuers on lack of public
awareness of the new products and a general lack of interest in the
stockmarket.
According to Job Kihumba, the executive director in-charge of
corporate finance at Standard Investment Bank (SIB), small and retail
investors, largely driven by speculation, took loans to invest in some
initial public offerings only to lose out as the market price of the
shares fell below the offer price.
“Kenyans are not too keen on the stockmarket. Many companies are
trading below their book value, while issuers will only bring
companies on the market if they are sure the shares will be taken up,”
said Mr Kihumba.
“Retail investors have left the market and gone to alternative
investments such as land, which is now a major competitor of the stock
exchange. The stockmarket is now being driven largely by foreigners and
we don’t know how long it will take for the bear run to end,” he added.
The NSE launched the REITs market in 2015 to provide avenues
through which small and individual investors could own pieces of the
property market.
However, poor marketing, competition from alternative investment opportunities such as government securities, and the risky nature of REITs as investment vehicles, have reduced demand for the instruments.
NSE chief executive Geoffrey Odundo said poor marketing of the product had led to the slow uptake of REITs as many people did not understand the product.
“REITs is a new product. We are now doing a lot of public education and training for trustees, and we will have a lot of engagement with the issuers,” said Mr Odundo.
The Gems platform was launched on January 22, 2013, to help small and medium-sized enterprises and family-owned businesses to list shares on the NSE and raise additional capital.
However, poor marketing, competition from alternative investment opportunities such as government securities, and the risky nature of REITs as investment vehicles, have reduced demand for the instruments.
NSE chief executive Geoffrey Odundo said poor marketing of the product had led to the slow uptake of REITs as many people did not understand the product.
“REITs is a new product. We are now doing a lot of public education and training for trustees, and we will have a lot of engagement with the issuers,” said Mr Odundo.
The Gems platform was launched on January 22, 2013, to help small and medium-sized enterprises and family-owned businesses to list shares on the NSE and raise additional capital.
But the market segment has only attracted six companies in four years, of which one has been suspended from trading.
The firms listed on the Gems are Home Afrika Ltd, Flame Tree
Group Holdings Ltd, Kurwitu Ventures Ltd, Stanlib Fahari Reit, Nairobi
Business Ventures, and Atlas Development and Support Services Ltd
(suspended). Last August, real estate firm Superior Homes announced that
it would list on the Gems by way of introduction to improve visibility
but the company is yet to do so.
Recommendations
In 2015, the CMA, in consultation with other market
stakeholders, carried out a study on the Gems market and recommended
that the NSE market it through a dedicated marketing department.
They also proposed to merge the segment with the alternative
investment market segment (Aims) so that companies listing on the
NSE through the Gems were also viewed as having “strong growth
potential” rather than second rate companies hoping to join the main
investment market segment (Mims) when they come of age.
The NSE’s proposed Gems champions are expected to focus on
creating a positive image of the segment through vigorous marketing,
including sensitising potential companies on benefits such as
transparent pricing of shares, more publicity for the company, and
enhanced corporate governance.
Other proposals to promote the Gems include a tax amnesty on
past omitted income of potential issuers, and introduction of
market makers to support liquidity of the segment’s shares.The market makers recommended to be the nominated advisors will provide
two way quotes (bids and offers) of Gems company shares to ensure that
the shares, which would otherwise be unavailable due to low free float,
are available for buyers and can easily be offloaded by sellers.
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