NSE seeks status upgrade to attract investors

The Nairobi Securities Exchange (NSE) plans to seek an upgrade of the market to a secondary emerging status in the next 18 months in a move meant to attract high volume investments into the country.

This move comes on the back of the Exchange’s plan to lure investors from China, India and other countries in the Far East to boost levels of capitalisation of the market.

The NSE’s chief executive officer, Mr Peter Mwangi, said in an interview the upgrade is expected to attract high volume of investments into the country given the favourable rating of Kenya as less risky and ideal investment destination.

“Recognition as an emerging market is important because investors with a mandate to invest in emerging markets would be able to direct their investment flows into our market. The assets held by emerging market funds are considerably larger than those held by frontier market funds,” Mr Mwangi noted.

The upgrade will put Kenya in the same league as other emerging economies like Argentina, Chile, China, Colombia, Czech Republic, Egypt, India, Indonesia, Malaysia, Morocco, Pakistan, Peru, Philippines, Russia, Thailand and Turkey, which are ranked by FTSE as secondary emerging countries.

These comprise a number of low income, lower middle, upper middle and high income countries with relatively developed capital markets infrastructure and significant market size.

FTSE has two ranks for emerging market status. These are the advanced and secondary emerging market categories. The index categorises South Africa, Brazil, Hungary, Poland, Mexico, South Korea and Taiwan in the Advanced Emerging countries status.

The markets in these countries are almost at par with those in the developed markets in Western Europe, North America and Japan. Some upper middle income countries are also categorised under this status if their market infrastructure is not very well developed.

“We have existing relationships with them (FTSE and MSCI) and are in discussions on how we can improve our market to meet their respective criteria for emerging markets. We expect to meet the criteria in the medium term (by end of 2016),” Mr. Mwangi said.

Frontier

Currently, Kenya is ranked as a frontier or a pre-emerging market but it attracts a relatively high level of foreign portfolio investments seeking high returns in the securities market.

Frontier markets are considered small or less-developed but have relatively high return equity markets though with high risks. They are usually expected to graduate to emerging market status over time.

Emerging markets on the other hand relatively advanced capital markets. They share some characteristics with those of developed markets although they are not yet very well developed.

Investors perceive investing in frontier market markets, as opposed to emerging markets as challenging due to factors like low market capitalisation, insufficient liquidity, high volatility, widespread political and economic risks and few products in the market.

Kenya, has however, over the years increasingly become a significant player in the regional and global economy and has attracted significant volumes of portfolio investments through the NSE.

As part of the plan for seeking a status upgrade, the NSE is planning to reach out to international investors in China, India and other Far East countries to invest on the market as it seeks to boost activities on the market and rope in more revenues.

The Exchange also anticipates establishing exchanges in Somalia, Southern Sudan, Democratic Republic of Congo and Burundi.

As part of the plan for seeking a status upgrade, the NSE is planning to reach out to international investors in China, India and other Far East countries to invest on the market.

The Exchange also anticipates establishing exchanges in Somalia, Southern Sudan, Democratic Republic of Congo and Burundi.

“NSE has plans to market the activities of the NSE to a wider international investor base including China, India and other Far East countries.

This could lead to large orders, increased executions and increased turnover and liquidity,” the firm said in its Prospectus for the on-going initial public offering (IPO).

Kenya’s GDP is approximately $45 billion US Dollars but the economy could be much bigger by 25 per cent.

The anticipated rebasing of Kenya’s economy by as much as a quarter could push the country into lower middle income status with a GDP of as much as $55 billion US Dollars and a per capita income of as much as 1,300 US Dollars. The revised GDP figures are expected to be announced in September this year.

“Basing on the estimates already out there, we should be heading to 55 billion or 57 billion US Dollar economy,” Cabinet Secretary for National Treasury, Mr Henry Rotich said at the inauguration of the NSE’s initial public offering (IPO).

A French credit firm, Coface, early this year categorised Kenya, Tanzania, Zambia, Bangladesh and Ethiopia with a growth rate of at least 4 per cent a year and a diversified economy.

The NSE is offering for sale 66 million shares to the public at Sh9.5 each. It intends to raise Sh627 million to enable it to repay its mortgage debt and invest in infrastructure for introduction of new products on the market.

Some of the products lined up for introduction include the Real Estate Investment Trusts (Reits), Exchange Traded Funds (ETFs), the Derivatives Market among others. The funds would also be used as seed capital for setting up the Derivatives Market to trade futures and commodities.