Interview: Geoffrey Gangla
What impact have macroeconomic headwinds had on foreign participation in the Nairobi Securities Exchange (NSE)?
GEOFFREY GANGLA: I think many funds that were set up four to five years ago to trade African funds have suffered significant losses across the continent. As an example, a fund that may have had $3bn-4bn for African equities now may only have $500m in capital. This has obviously had a major impact on trading volumes. Many pan-African funds had huge losses in countries like Nigeria due to both the reduction in share price and currency fluctuation. This, too, has had a large impact across the board in terms of available capital for investment.
Conversely, we have seen a number of international brokers entering the market. This shows us that there is still tremendous interest in the Kenyan equities space and securities trading.
What impact has the rollout of new tradeable instruments had on Kenya’s equity markets?
GANGLA: Investors are still just beginning to understand the particular instruments that are available. I think that exchange-traded funds (ETFs) are not active yet, but we have certainly seen the uptake of real estate investment trusts begin to take off. Their introduction was during a very shaky time and looking back, I believe that we needed additional time to inform people about the new products at the fund manager level.
Also, in the local equities market, the trustees still have a big say if there are new products coming in. I think you need to do a lot more work upfront, because if you follow the typical regulatory timetable and give yourself only one month or six weeks to do the marketing and education, and to get the approvals, it becomes very challenging.
I think in the fullness of time, we will see more interest and participation in those instruments. It just takes time to educate people. With ETFs, I don’t think there is one type out-trading another, but it is a much more attractive way for foreign investors to buy a basket of Kenyan securities.
Which sectors do you think have the greatest likelihood of coming to the NSE?
GANGLA: I believe there is significant potential in financial institutions: there are a number of large and medium-sized banks that are not on the board. Due to local regulations, the insurance sector is also a major opportunity. We’ve also seen great opportunity in the energy sector. Currently there is only one power generator listed, and I ask myself why all of them don’t enter the stock market. The fast-moving consumer goods sector also has some large companies in food and personal care. If you look at all of the companies that equity investors have put money into, those should also be candidates for coming to the exchange.
How would you rate the performance of the Growth Enterprise Market Segment (GEMS)?
GANGLA: There are maybe four or five listings of companies that have not performed as well as we had hoped. The news regarding these companies has been largely negative. That obviously has an effect on investor sentiment.
From an intermediary point of view, the regulations on GEMS make it very difficult for an intermediary to support a company: most of the responsibility lies with the financial advisor. Looking at the size of the companies and the fees that they can actually afford, there’s a big mismatch. Many intermediaries avoid the GEMS because it doesn’t make financial sense for them. We need success out of the GEMS entrants because that would increase the attractiveness to list. We have seen that high performers often overshadow the underperformers.
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