Category Archives: NSE stockbrokers

Investing: Use Social Networks, don’t be used

All data indicates a new age of interest in retail investing. Across the world more people than ever are starting to trade for the first time, with reports of retail participation in the US stock market, for example, increasing from 10% in 2019 to 25% in 2020. Even during a public relations disaster, Robinhood- the U.S retail-focused trading app- onboarded 600k new clients in a single day. Our brokerage, Equiti Group/ FXPesa, saw volumes and client numbers increase by multiples across all our key markets and this will continue through this year.

The pandemic created an environment where people were looking for an income in the safety of their own home and, logically, that trading/ investing answered that need. Anything that brings a heightened awareness of financial literacy is a great thing, but it’s also something that we need to nurture. With millions entering the financial markets for the first time, unfortunately, scams, misinformation and false promises follow, and we must increase consciousness of this.

Social Networks: Most of the world has been following the journey of a supposed war between those on a Reddit forum called r/WallStreetBets and hedge funds betting on the demise of American electronic games supplier GameStop (going ‘short’). This battle was trending on all major social networks, such as Twitter, Facebook, Telegram and Instagram. These networks are powerful, Reddit has 160 million unique visits to its site each month.

People that had never invested before frantically set up trading accounts and placed trades with as much capital as they could put their hands on. Some naïve first-timers often had very little notion of risk or what they were doing, but instead paid full attention to the latest funny meme or influencer that told them that this stock was ‘going to the moon’. It did, and then it came back again leaving a lot of people losing a lot of money.

Ignoring Fundamentals: Social networks and online personalities have an increasing amount of influence over investors. Recently, Elon Musk the CEO of Tesla added 12% to the value of Bitcoin simply by changing his bio to the bitcoin Twitter hashtag. With the wave of memes, online ‘experts’ and celebrities pushing their agendas, the fundamentals of great companies are becoming secondary. We need to acknowledge this and attempt to educate differently.

A perfect example of this was the recent movement in the Silver price. Silver is widely regarded as an undervalued metal, mainly because of its increasing utility in ‘green technologies’, such as solar panels. Various reports declare solar panels and wind turbines will require three times more silver than what is used today. Silver is also used in electric car production and other tech of the future. When the silver price jumped 12% (its biggest intraday rise since 2008), it was not because of these fundamentals. The price jumped primarily because social media declared the same war with hedge funds and decided to try to do the GameStop ‘trick’ again, making the Twitter hashtags #shortsqueeze and #silvershortsqueeze trend across the world. The silver market is huge and not as easily manipulated as a relatively small stock such as GameStop, and so this attempt was doomed, with silver retracing back very quickly and lots of retail traders losing more money. 

All this focus away from fundamentals, meant that the market was quite late to understand the stellar Q4 earnings shown by some great companies, especially Big US Tech firms. Amazon posted $126 billion Q4 revenue and shows no sign of slowing. Google saw a 23% revenue growth in Q4. Unfortunately, the circa 4-6% share price increases these saw due to these results aren’t considered attractive enough to those only seeking the 16x returns GameStop gave some in just 2 weeks. There is so much real opportunity in the markets, especially now.

Scams: If you were to investigate your junk mail (don’t!), you would have probably been sent a scam email within the last 24hrs. It is most likely centred around cryptocurrencies, where it is promising huge returns from trading obscure crypto that you have never heard of. Some of the recent scams are from hackers sending out tweets from reputable, businessmen like Jeff Bezos and even former presidents such as Barack Obama’s certified accounts. They ask for the trusting public to send bitcoin to a wallet and then wait for 2x back.

Unfortunately, as unlikely as these scams may seem, the public is losing millions of dollars to them daily. In today’s ‘at once’ society, many aren’t thinking of growing knowledge and wealth over a long period. Instead, they want instant gratification and huge profits, as is the expectation in most walks of life now. Now, if you want something, you want it immediately- but my experience of wealth generation is the very opposite of this. It takes time to do it right.

Long-term side-effects: Social media has been an excellent source of information for new traders, keen to improve their financial futures. However, there is cause for concern if these young and new entrants blindly follow investment ideas that they do not understand, just because the herd are doing the same thing. We have a huge wave of first- time traders ignoring great companies that have incredible distribution channels and solid, multiple revenue streams, instead opting to follow a funny meme of Elon Musk and a Shiba Inu dog (DogeCoin).

A glaring issue is I don’t see how it can work out for these traders. If they make money in these pump-and-dump Reddit schemes, for example, they will invariably put more into the next one and continue until they lose everything. In this search for increasing returns, they are also susceptible to false promises and scams. On the flip side, if they lose their money in the first attempt, they are likely to shut their accounts and never think about their financial futures again. That is a tragedy.

It is far better to work with a brokerage to diversify your investments across global asset classes, regions and short and long-term plays, concentrating on sound fundamental and technical analysis…improving your knowledge day by day, year by year. Understanding this gives you a great chance at achieving real wealth. This has always been exciting enough for me, no meme needed. 

A guest post by Brian Myers (@bjmyersUK), the CEO at Equiti Capital UK.

Nairobi Stockbroker Moment: Changes in 2020

  • African Alliance Kenya Investment Bank announced its exit from stockbroking, to focus on asset management, digital and treasury business. Clients are to transfer their CDS accounts to other stockbrokers by July 22. It will continue to operate as a licensed investment bank and fund manager and plans to launch several new funds. 
  • AIB Capital and Apex Africa are finalizing a deal announced in February 2020 to merge their stock-broking, bond-trading, derivatives, research and corporate finance businesses that will operate as AIB-AXYS Africa. To effect this, all Apex Africa capital accounts will migrate to AIB by June, without disrupting services, and AIB Capital will move to Apex Africa premises in Westlands, Nairobi.
  • Genghis Capital and EGM Securities have announced a partnership to give investors a wider range of alternative asset classes including online currencies, commodities, precious metals, oil, and biotech company stocks. EGM runs FX Pesa and the partnership, which is on a revenue share basis, envisions enabling Genghis clients to purchase shares of Amazon, Alphabet, Facebook, Zoom, Moderna and Gilead Sciences. 
  • NSE App: Finally the Nairobi Securities Exchange (NSE) has also launched online share trading through a new app that enables people to open CDS accounts on their phones and start trading listed company shares. The app, available on Android and iPhone, makes it easier to get live share prices, and view data of ongoing trade activity, with personalized notifications, chats, and financial news. 
  • NSE Training: The NSE has also been conducting investment training classes virtually to show people how to invest online, open accounts, choose stockbrokers, manage portfolios, and invest in derivatives.  
  • CMA statsStatistics from the Capital Markets Authority (CMA) show that Nairobi had a net outflow by foreign investors worth Kshs 11 billion in the first quarter of 2020, compared to inflows of Kshs 601 million in the first quarter of 2019. 

Also:  

  • Market capitalization was down 15% down to Kshs 2 trillion, from 2.3 trillion in Q1 2019. CMA stats also show that while Kenyan equity trades in the first quarter of 2020 were down 5% compared to the previous year, in (much smaller) Uganda and Tanzania, trades were up astronomically, by 315% and 433%, respectively.
  • Ultimately, Nairobi stockbrokers need a new IPO to fuel investor interest in the trading shares, and it should probably be through a huge government privatization on par with Safaricom, which the last major government IPO in 2008. Since then there have been IPO’s from Co-op Bank, British American (2011), the NSE itself in 2014, and the Stanlib Fahari I-REIT (2015).
  •  On the derivatives counter, introduced in 2019, there was 47% more activity in Q1 2020 to compared to Q4 in 2019. KCB was the most active (138 contracts worth Kshs 6.6 million), followed by Safaricom and Equity Bank. Meanwhile,  the New Gold ETF is 93% traded by foreign investors.  NSE stats show that AIB is the leading arranger of NSE futures deals, doing about 41% of deals worth 5.2 million, followed by Sterling Capital (28%) and Standard Investment Bank (9%).
  • Collective investment schemes currently have 52% of their portfolios in government securities, 26% in fixed deposits and 12% (Kshs 9.2 billion) in listed NSE firms.  

Kenya launches futures derivatives markets

The Nairobi Securities Exchange (NSE) has gone live with NEXT – futures derivatives trading in a move to enhance risk management and becoming the second exchange in Africa to offer exchange-traded derivatives.

The NSE will offer two types of derivatives; equity single stock futures (SSF) starting with shares of five listed firms that met specific criteria such as high daily trading volumes (British American Tobacco, East Africa Breweries, Equity Group Holdings, Kenya Commercial Bank Group, and Safaricom Plc) as well as an NSE 25 Share Index futures (EIF) that provides investors with a benchmark to track the performance of the Kenyan securities market. The introduction of NEXT futures will also increase trading activity and liquidity at the NSE as investors will have the potential for greater returns, even when share prices are going down (short selling), as they only have to put up a small amount of money as leverage.

This comes after a successful six-month pilot test in which end-to-end derivative transactions were done in a live environment, and which tested the capabilities of market players. Kenya’s Capital Markets Authority (CMA) then granted approval in May 2019 for the NSE to launch and operate the derivatives exchange market.

The CMA has also licensed several entities to undertake derivative services.  The stockbrokers that will offer derivatives futures to investors from today will be African Alliance Securities, AIB Capital, Apex Africa Capital, CBA Capital, Dyer & Blair Investment Bank, Faida Investment Bank, Genghis Capital, Kestrel Capital,  Kingdom Securities, NIC Securities, SBG Securities, Standard Investment Bank and Sterling Capital. Also, two banks, Stanbic and Cooperative, will provide clearing and settlement services, collecting margins and generating data and reports on futures trading activities.

The launch of NEXT derivatives trading comes after a series of other innovations at the NSE including the introductions of the M-Akiba mobile phone bond, Real Estate Investment Trusts (REIT’s), asset-backed securities and exchange traded funds (ETF’s). If the uptake and performance of stock futures are successful, next at the NSE will be currency derivatives and interest rate derivatives.

EDIT November 2019: The Capital Market Soundness Report- Q3. 2019 from the CMA showed that 349 contracts were traded between 4th July 2019 and 30th September 2019.

Of these, the market traded 248 Safaricom contracts representing a turnover of KES 6.9 million; banking contracts came in second with 58 KCB Group contracts traded at a total turnover of KES 2.3 million; and 26 Equity Bank contracts traded at KES 1.0 million. The NSE 25-Share index contract traded 12 contracts at a total turnover of 2.6M.

Genghis Stock Picks for 2019

Nairobi-based investment bank Genghis Capital launched their 2019 “investor playbook” with the theme of embracing value. 2018 was a challenging year for the Kenyan economy and capital markets and that is expected to continue in 2019, but this also presents opportunities for investors.

Kenya has a relatively small number of stocks (65) on the Nairobi Stock Exchange (NSE) – and Genghis chose nine stocks as their 2019 financial (banking & insurance) and non-financial picks for investors, in three categories:

  • Momentum stocks: Equity Bank, East African Breweries, KCB Group, Safaricom.
  • Income stocks: Stanbic, Barclays Kenya, Standard Chartered, KCB. 
  • Value stocks: Kenya Reinsurance, KCB, Bamburi Cement. 

They cited that Safaricom scored positively in every category while KCB and Equity banks had embraced digitization, high asset quality and low cost structures.

Other points from the playbook launch presentation:

  • They do not expect a repeal of interest rate caps this year, even though its impact has been negative on the economy.
  • Funds raised for infrastructure bonds are not all being used for that; some are going to retire other debts and they should be properly used
  • Public-private partnerships are not coming to fruition; paperwork for the Nairobi-Nakuru highway was submitted in April 2018 but there has been no decision.
  • To a question – “what is the regulator doing to increase the confidence of investors amid fraud incidents?” – the CMA can only do so much and the onus is still on the company directors. International markets have graver penalties than Kenya and perhaps it is time the Director of Public Prosecutions started looking at some cases here and following through on enforcement. 
  • While Kenya Re is a pick in the playbook, they generally don’t cover the insurance sector – it has challenges including fraud, price under-cutting, and low penetration levels (3%) and a lot has to happen to unlock value and growth in the insurance mass market. Kenya Re is there because it is under-valued (owing to lack of clear strategy and proper management) but would be desirable to other insurance investors if the government decided to sell its shareholding.
  • They expect one main listing and others on the smaller NSE boards this year. But while a number of planned privatizations have been mentioned  – Consolidated and Development banks, Kenya Pipeline, Kenya Ports they face numerous hurdles while others like sugar companies in Western Kenya have been on the pipeline since 2011. 

Case Digest – Kenyan Capital Markets Court Cases

Kenya’s Capital Markets Authority (CMA), has published a digest of legal cases that Authority has been involved in, and some of which were later appealed.

The 27 cases cover ten years, and most the largest share involve dealings at  Uchumi and others revolve around executives and directors of CMC, commercial banks, and a handful on rogue stockbrokers who preyed on retail investors during the heyday of the Nairobi Stock Exchange during the IPO listings of Kengen and Safaricom.

Some notable cases include, Solomon Alubala who was fined Ksh 104.8 million and barred from holding a position at a listed firm for ten years, Bernard Mwangi who attended Uchumi board meetings and sold shares while the company was performing poorly, CMA cases versus Jeremiah Kiereini and  Martin Foster, Chairman and CEO of CMC Motors, the CMA versus the Institute of Certified Public Accountants of Kenya (ICPAK) over audits done by its members at CMC, cases involving Chadwick Okumu, CFO of Uchumi, and CMA versus Jonathan Ciano, a CEO who was for a time celebrated for turning round the Uchumi. They also have a case of Alnashir Popat and Imperial Bank directors, and Munir Ahmed MD of National Bank who the CMA fined Kshs 5 million and barred from holding a position at a listed company for three years.

The cases are published in partnership with the National Council for Law Reporting who have an online database of over 124,000 court cases.