Wednesday, 8 January 2014

EA Securities Exchanges 2014: A year of the Bulls?

 Launching trading of a new listing at NSE
THE  NAIROBI SECURITIES Exchange was the top African performer in 2013. The MSCI emerging Market index placed NSE’s dollar adjusted return at 43.58 per cent. Another analyst, the Africa Capital Group places NSE’s return at 43.70 per cent.

Whatever the case, NSE posted a huge rate of return. The market is capitalised at US$2.3 billion and some of its blue-chip scripts are cross-listed in other bourses in east Africa. This is the largest market capitalisation in east Africa, consequently, the movement of its muscle is also felt in the regional bourses. 

This year, it is expected to pull along those bourses as it surges forward. The other three bourses, namely, Dar-Es-salaam stock Exchange, the Uganda Securities exchange and the Rwanda stock exchange did not feature in the MSCI global Emerging Market index, being nascent markets.

However, according to the ACG index, they are good performers in Africa with returns higher than S&P 500. The index shows that the Uganda Securities Exchange posted 33.3 per cent. DSE performed below S&P rate, posting a 25.5 per cent rate. The S&P 500 index stood at 29.6 per cent. This leads to the question which way east African bourses in 2014? Will they be bulls or bears?

My Prognosis: We are looking at bulls for 2014. Here are my reasons. To start with, the region’s GDP is expected to post a 6.2 per cent growth rate in 2014. But Kenya, which has been the drag in the region’s otherwise fast paced growth, appears set to post anything above 6.0 growth rate in 2014. This would push the region’s growth rate up-perhaps to 6.5 -7.0 per cent.

Why Do I say this? Sentiment on the Kenyan economy is still positive following last year’s peaceful election and transition to the new government. Political risk is thus receding to the back burner. The signs that the case facing the Kenyan President at the International criminal Court could collapse only stokes the fires in the positive territory.
Inflation in the region has also been contained at below ten percent. And safe for a major economic shock, external or internal, inflation is likely to remain within single digits range for much of 2014.

 The discovery of fossil fuels in east Africa, and especially Kenya has spawned new interest in investm ent firms with an interest in Oil, infrastructure. These are the only firms that can invest some debt or equity in the prospecting firms since the prospectors are not yet listed at the local bourses.

Further, Kenya has joined the ranks of middle income countries with a GDP per capita above $1025. Kenya’s GDP per capita is expected to be between $1040 and $1047. In 2012Kenya’s GDP per capita weighted in 2001 dollars was US$991, says the Africa Development bank. In 2013, her GDP growth rate estimated at between 5.0 and 5.4 percent. This means that Kenya’s GDP per capita has risen has surpassed the entry level of $1025.  

This means that listed companies are gearing for better times as economic growth creates more customers. Analysts in Nairobi expect a number of the listed companies to report double digit growth in profits due growth in activity.

East Africa and the COMESA block are the largest market for Kenyan manufactured exports. Consequently, Kenya Companies, especially in the retail trade and commercial banks are aggressively expanding into the regional markets. One of the expansion strategies is to list in the regional bourses.  Companies such as Kenya Commercial Bank, Equity Bank, Kenya Airways, Nation Media Group, East Africa Breweries and Uchumi Super markets have already listed in the bourses such as DSE, USE and RSE.
At the NSE itself, a new round of listings is expected as companies seek cheap capital to arm their war chests as they seek to expand in the region. Once listed at NSE, listing at the secondary market in east Africa is not expensive.

The listing of Kenya companies into these markets has helped increase activity at the local bourses. Being generally blue chip companies, demand for the script is very high. That is why Kenyan Listed companies are pricey in the east African bourses. Despite this, they are also the most sought after companies because of their generous dividend policies. They also contribute to driving activity in the local bourses.

Consequently when NSE sneezes, others catch a cold. And when it runs they run. The expected bullish year at the NSE coupled with growth in the other economies is east Africa will keep bourse activity on the positive territory for 2014.



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